How is a percentage deductible calculated?

• A. As a fixed amount regardless of the insured value
• B. As a percentage of the value of the insured risk
• C. As an average of previous claims
• D. As a flat rate based on the type of insurance

Answer: (B)

The calculation of a percentage deductible is based on a specific percentage of the value of the insured risk. This means that when a claim is made, the deductible amount is determined by multiplying the insured value by the percentage specified in the policy. For example, if a property is insured for $100,000 and the deductible is set at 2%, the deductible amount would be $2,000. This structure ensures that the deductible fluctuates with the value at risk, providing a fair approach for both the insurer and the insured. It aligns the deductible with the total amount of coverage, meaning that as the value of the insurance policy increases or decreases, the deductible adjusts accordingly.

This method is particularly beneficial because it protects the insurer from having to cover small claims while still providing a safety net for the insured, encouraging them to be conscientious about their risk management. Consequently, option B accurately describes the nature of how a percentage deductible functions in an insurance policy.