Question

A deductible of $300 requires

A) the insurance company to pay the first $300 at 100% of damages.
B) you to pay the first $300 of damages.
C) the insurance company to pay the first $300 at 80% of damages.
D) the insurance company of the party at fault to pay.

Answer 1

The deductible of $300 in an insurance policy means you are responsible for the first $300 of any damages. This cost-sharing mechanism helps lower moral hazard by having the policyholder bear a portion of the risk. The correct option is B.

Step-by-step explanation:

When a policy mentions a deductible of $300, it means that you, as the policyholder, must pay the first $300 of any damages out of pocket before your insurance company begins to cover the costs of damages. This is a common practice in insurance policies to share costs and reduce moral hazard, which is the tendency to take on more risk because the cost is partially borne by others.

In addition, there are other forms of cost-sharing such as copayments and coinsurance, where policyholders pay a fixed amount or a percentage of the costs, respectively, thereby reducing the potential for reckless behavior that could increase the likelihood or severity of a claim.

Hence, Option B is correct.