Identify the Correct Statement About Deductibles and Its Types

question 63

Multiple Choice

Identify the correct statement about deductibles and its types.

• A)It requires you to carry an amount of insurance equal to a specified percentage of the value of the property if you wish to be paid the amount of loss you incur in full.
• B)The low frequency and high severity nature of most direct property losses makes deductibles particularly important.
• C)The straight deductible is a modification of the disappearing deductible.
• D)Deductibles help maintain reasonable premiums because they eliminate administrative expenses of the low-value, common losses.
• E)Because it invites moral hazard, a franchise deductible is appropriate only when the insured is able to influence or control the amount of loss.

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Definitions:

Depreciation

The reduction in the value of an asset over time, typically due to wear and tear, obsolescence, or market conditions.

Net Investment

The total spending on new capital minus depreciation on existing capital within a given period.

Gross Investment

Refers to the total amount of investment in physical assets and capital expenditures made by businesses before accounting for depreciation.

Depreciation

The accounting method of allocating the cost of a tangible asset over its useful life, reflecting wear and tear, obsolescence, or age.