Texas All Lines Adjuster Practice Test

What is the primary characteristic of a franchise deductible?

1. The policyholder pays all damages

2. The insurer covers all damages exceeding the deductible amount

3. The policyholder pays only for damages below the deductible

4. The deductible varies with each claim

The correct answer is: The policyholder pays only for damages below the deductible

The primary characteristic of a franchise deductible is that the policyholder is responsible for paying for damages that are below the specified deductible amount. In a franchise deductible, if the total claim amount exceeds the deductible, the insurer will cover the entire amount of damage above that deductible threshold. This means that for any damages less than the deductible, the policyholder absorbs the entire cost. Therefore, the concept behind this type of deductible is that it simplifies the claims process for larger losses while providing the policyholder an incentive to manage smaller risks directly. In contrast, other types of deductibles may have different applications and outcomes, but the franchise deductible specifically highlights the distinct separation of risk between small and large claims, aligning with the description provided in the correct answer.