Final answer:
A deductible is the amount that a policyholder must pay out-of-pocket before the insurance company covers any of the costs. It is a form of cost-sharing designed to reduce moral hazard. The correct option for what a deductible is B) not paid by the insurance company.
Step-by-step explanation:
A deductible is an amount that the insurance policyholders must pay out of their own pocket before the insurance coverage begins to pay anything. This is a cost-sharing mechanism that helps to prevent moral hazard by ensuring that policyholders have a financial stake in the cost of their own healthcare or property expenses. If the deductible is increased, the premium typically decreases because the policyholder is taking on more financial responsibility for potential losses.
The correct answer to the question is B) not paid by the insurance company. This means that it is the maximum amount the policyholder must cover out-of-pocket before the insurer pays for any claims.