What describes a franchise deductible?

• A. The insurer pays if damages exceed a minimal threshold
• B. The policyholder pays a percentage of all damages
• C. The policyholder pays up to the deductible amount for all claims
• D. The insurer covers all damages regardless of the deductible

Answer: (A)

A franchise deductible is a unique type of deductible often found in various insurance policies. It is characterized by a specific threshold of damages that must be exceeded before the insurer begins to compensate for losses. Once the damage surpasses this minimal threshold, the insurer will cover the amount of the damages above that threshold.

This structure is beneficial for both the insurer and the policyholder, as it encourages the policyholder to manage smaller claims independently and allows insurers to reduce administration costs for minor claims. The policyholder is not responsible for paying a fixed amount for every claim or a percentage of all damages; rather, they only bear the initial burden of costs up to a certain point, above which the insurer takes over.

The other options do not accurately describe a franchise deductible. For example, requiring the policyholder to pay a percentage of all damages or a fixed deductible amount for each claim would constitute different deductible arrangements and contradict the operational mechanics of a franchise deductible. Thus, understanding the significance of the threshold in a franchise deductible is crucial for grasping how this type of insurance provision works.