Deductible: what is it?

• A. The portion of the premium paid to the insurer
• B. The maximum coverage amount
• C. The amount the association or homeowner must pay on each loss
• D. A deductible is a type of warranty

Answer: (C)

A deductible is the amount the association or homeowner must pay out of pocket on each covered loss before the insurer contributes. It’s your share of the claim, used to encourage careful risk management and reduce small, frequent claims. It’s not part of the premium (the premium is the payment to keep the policy active), and it’s not the maximum amount the insurer will pay (that limit is the coverage cap). It also isn’t a warranty.

For example, if a covered loss costs 10,000 and the deductible is 1,000, the association pays 1,000 and the insurer pays 9,000, up to the policy limits. In most policies, the deductible applies per loss event, so each new incident triggers its own deductible.