South Carolina Life Insurance Practice Exam

What term describes the amount that an insurance policyholder must pay out-of-pocket before coverage kicks in?

1. Deductible

2. Copayment

3. Coinsurance

4. Premium

The correct answer is: Deductible

The term that describes the amount that an insurance policyholder must pay out-of-pocket before coverage kicks in is known as a deductible. A deductible is essentially the initial expense that the insured is responsible for when making a claim. Until this amount is paid, the insurance company does not begin to cover the costs associated with the claim. Deductibles are common in many types of insurance, including health and auto insurance, and they serve to share the risk and costs between the insurer and the insured. High-deductible plans may result in lower premiums, while lower deductibles may correspond to higher premiums. In contrast, copayment refers to a fixed amount the insured pays for specific services at the time of care, while coinsurance indicates a percentage of costs that the insured pays after the deductible has been met. A premium, on the other hand, is the amount paid for the insurance policy itself, typically on a monthly or annual basis. Understanding these terms is crucial for managing an insurance policy effectively.