Nebraska Property and Casualty Practice Test 2025 - Free Property and Casualty Practice Questions and Study Guide

A deductible is a specific amount that an insured must pay out-of-pocket before the insurance company starts to cover the remaining costs of a claim. This means that when a loss occurs, the deductible is subtracted from the total amount of the loss to calculate the final payout from the insurer. For example, if you have a $1,000 loss and a $200 deductible, the insurance company would only pay $800.

This concept is crucial in insurance as it helps lower premiums, encouraging policyholders to share some of the risk. If a policy has a higher deductible, it typically results in a lower premium because the insurer assumes less risk. Conversely, a lower deductible can lead to higher premiums since the insurer is responsible for a greater amount of the claim.

In the context of the other choices, while a deductible does not directly increase the insurance premium, it does influence the overall cost of coverage. It doesn't specify immediate payments to contractors or provide additional coverage options; its primary function is to determine the actual payout an insured receives after a loss.