Final answer:
In a Personal Auto Policy, deductibles are applied on a per occurrence basis, requiring policyholders to pay out-of-pocket for each covered incident before receiving insurance benefits. Option 2 is correct.
Step-by-step explanation:
In a Personal Auto Policy, deductibles are applied on a per occurrence basis. This means that the deductible is the maximum amount a policyholder must pay out-of-pocket for each separate event or accident before the insurance company covers the remaining expenses.
Deductibles along with copayments and coinsurance are methods used to share costs between the insurer and the insured, thereby reducing moral hazard. While a co-payment is typically a flat fee paid for services, and coinsurance is the percentage of costs that the policyholder must cover, the deductible requires payment up to a set amount for each covered incident before the insurance benefits kick in.
In a Personal Auto Policy, deductibles are applied on a per occurrence basis. This means that for each claim or incident, the deductible amount must be paid by the policyholder before the insurance company covers the remaining costs.
For example, if your car is damaged in an accident and the deductible on your policy is $500, you would need to pay $500 out of pocket before the insurance kicks in and covers the rest of the expenses.
So, the correct option for deductibles in a Personal Auto Policy is Option 2: Per Occurrence.