Texas All Lines Adjuster Practice Test

Which type of deductible would the policyholder pay out-of-pocket before receiving any indemnity?

1. Franchise Deductible

2. Fixed Deductible

3. Percentage Deductible

4. Variable Deductible

The correct answer is: Fixed Deductible

The type of deductible that a policyholder pays out-of-pocket before receiving any indemnity is a fixed deductible. A fixed deductible represents a specific dollar amount that must be paid by the policyholder when a covered loss occurs. This amount is subtracted from the total loss before the insurance payment is made, meaning that the insured must incur these costs entirely before the insurer begins to provide coverage for the remaining amount. For example, if a policy has a fixed deductible of $1,000 and the total damage amounts to $5,000, the policyholder pays the first $1,000, and then the insurance company would cover the remaining $4,000. This type of deductible is straightforward and ensures clarity for both the insurer and the insured regarding the out-of-pocket expense expected in the event of a claim. In contrast, a franchise deductible would operate differently, as it is structured so that if the loss exceeds a certain threshold, the full amount of coverage kicks in, while a percentage deductible is a percentage of the total claim amount that the insured must pay out-of-pocket. A variable deductible can change depending on the circumstances or the size of the claim, making it less predictable than a fixed deductible. Therefore, the fixed deductible is the most relevant choice