North Carolina Adjuster Practice Exam

What is the maximum amount that Frank would need to pay as a deductible for his $700,000 policy?

1. $28,000

2. $35,000

3. $50,000

4. $70,000

The correct answer is: $28,000

To understand the correct answer, it’s essential to grasp the concept of deductibles in insurance policies. A deductible is the amount that a policyholder is responsible for paying out of pocket before the insurance coverage begins to pay for a covered loss. In many insurance policies, particularly in areas prone to natural disasters or certain types of claims, deductibles may be expressed as a percentage of the total insurance coverage. In this case, if Frank has a $700,000 policy and a deductible is calculated as a percentage (for instance, 4% commonly used in policies), we can determine the deductible amount. Calculating 4% of the $700,000 policy leads us to: 4% × $700,000 = $28,000. This amount represents the maximum deductible Frank would have to pay in the event of a claim. Therefore, the answer of $28,000 is the accurate maximum deductible as it aligns with the calculation based on the percentage applied to the total policy value. This understanding reinforces the concept of how deductibles function in insurance contracts, especially regarding significant coverage amounts like that of Frank's policy.