Final answer:
Cash payment benefits are known as indemnities, while deductibles, co-payments, and coinsurance all involve the policyholder sharing the cost of services, which helps to reduce moral hazard in insurance practices. Option 1.
Step-by-step explanation:
Benefits that are made in the form of cash payments are known as indemnities. These are distinct from other insurance concepts like deductibles, co-payments, and coinsurance.
Deductibles are the out-of-pocket maximums before the insurance coverage kicks in. Co-payments are fixed amounts paid at the time of service. Coinsurance is a shared cost between the insurer and insured, often a percentage of the total bill.
These financial responsibility requirements are important because they help reduce moral hazard, the tendency of individuals to take greater risks because they are insulated from the consequences of those risks by insurance.
By having deductibles, co-payments, and coinsurance in place, insurance policyholders are inclined to act more cautiously since they share in the costs incurred from claims or services rendered, thus leading to potentially lower overall consumption of services and costs. So option 1.