Other Than Life (OTL) Practice Exam 2025 – All-In-One Guide to Exam Success!

The term "deductible" in an insurance policy refers to the specific amount that an insured individual must pay out-of-pocket for covered expenses before the insurance company begins to make payments towards a claim. This means that if a loss occurs, the insured is responsible for this initial financial burden before their coverage kicks in.

Understanding that the deductible must be met for the insurer to cover any further costs is crucial for policyholders, as it affects how much they will need to pay in the event of a claim. Deductibles help to lower insurance premiums and encourage insured individuals to manage risks more effectively.

The other options do not accurately define a deductible. The total coverage amount or the insured amount before a claim refers to the limits of what the policy covers, which is separate from the concept of a deductible. The yearly cost of the policy pertains to the premium, a different aspect of insurance financing entirely. Thus, the definition of a deductible centers specifically on the initial out-of-pocket payment required by the policyholder before the insurer begins to pay for damages.