Massachusetts Health & Accident Insurance Practice Exam

What is a Flat Deductible?

1. A stated percentage of the covered loss

2. A specified dollar amount that applies to a covered loss

3. A type of coinsurance arrangement

4. A fee charged annually

The correct answer is: A specified dollar amount that applies to a covered loss

A flat deductible refers to a specific dollar amount that must be paid by the insured before any insurance benefits kick in for a covered loss. This means that regardless of the amount of the claim, the insured is required to pay this predetermined amount out-of-pocket before the insurance company pays for the remaining costs. This type of arrangement is straightforward, as it does not change based on the percentage of the claim or involve a percentage calculation, making it easier for policyholders to understand their financial responsibilities. In contrast, other options represent different concepts in insurance. A stated percentage of the covered loss indicates a form of coinsurance, where the insured pays a percentage of the costs, depending on the policy terms. Coinsurance arrangements are typically more complex and vary with each claim. A fee charged annually does not relate directly to the concept of deductibles but rather refers to premiums or other fixed charges associated with maintaining an insurance policy. Thus, the specified dollar amount characteristic of the flat deductible clearly distinguishes it as the correct answer in this context.