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      Question

      What is the purpose of a "deductible" in an insurance

      policy?
      A To reduce the premium cost Correct Answer Incorrect Answer
      B To avoid small claims Correct Answer Incorrect Answer
      C To encourage the insured to take precautions Correct Answer Incorrect Answer
      D To limit the insurer's liability Correct Answer Incorrect Answer
      E All of the above Correct Answer Incorrect Answer

      Solution

      Deductibles serve multiple purposes:

        • Reduce premiums: By paying a portion of the loss, the insured helps reduce the overall cost of insurance.
        • Avoid small claims: Deductibles discourage the filing of small claims that are not economically significant.
        • Encourage risk management: Deductibles incentivize the insured to take precautions to prevent losses.

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