International Baccalaureate (IB) Practice Exam

What is the function of an insurance deductible?

1. To be the maximum amount the insurer pays

2. To be the amount the policyholder pays before insurance kicks in

3. To be the type of coverage selected

4. To determine the premium cost

The correct answer is: To be the amount the policyholder pays before insurance kicks in

The correct answer identifies the function of an insurance deductible accurately as the amount that the policyholder must pay out-of-pocket before the insurance coverage begins to take effect. This structure protects the insurance company from small claims and encourages policyholders to avoid minor damages since they are responsible for covering them up to the deductible level. Consequently, if a policyholder has a deductible of $500, they must incur expenses up to that amount before the insurer will begin to cover the costs of a claim. Other options, while related to aspects of insurance, do not correctly describe the role of the deductible. The first option mistakenly suggests that the deductible caps what the insurer will pay, which is not its function. The policyholder is responsible for covering the deductible, but once it is met, the insurance policy takes over for the rest of the claim amount, up to the limits specified by the policy. The third option refers to the type of coverage, which relates to what risks are insured against but does not pertain to the deductible’s role. Finally, the last option involves the premium cost, which is determined by various factors including risk assessment and coverage levels rather than the function of the deductible itself.