Final answer:
The statement that the deductible is the fee paid for having automobile insurance is false. A deductible is the amount paid out-of-pocket by the policyholder before an insurance claim is covered by the insurer.
Step-by-step explanation:
The student's question contains an incorrect statement. The term deductible is not the fee a driver pays to have automobile insurance; instead, it is an amount that the policyholders must pay out of their own pocket before the insurance coverage starts paying for the covered expenses. The correct answer to the student's question is B. False.
To elaborate, an automobile insurance policy may include a deductible, copayments, or coinsurance. Here is how these terms differ:
Deductible: The amount you must pay out-of-pocket for repairs before your insurance coverage pays for the remaining costs of a claim.
Copayment: A flat fee that you pay for a specific service or visit before the insurance kicks in.
Coinsurance: Refers to sharing the cost of the covered services, typically as a percentage of the bill after the deductible has been met.
These elements are designed to reduce what is known as moral hazard, which occurs when the insured party is less motivated to prevent loss because the insurance policy covers the majority of the risk.