What is the nature of a percentage deductible?

• A. A fixed fee prior to receiving claims payment
• B. A variable amount based on the type of loss incurred
• C. A deductible amount that increases with the claim size
• D. A deductible expressed as a percentage of the covered loss

Answer: (D)

A percentage deductible is defined as a deductible expressed as a percentage of the covered loss. This means that before an insurance policy pays out on a claim, the insured is responsible for a percentage of the loss amount. For example, if an insured has a property loss of $100,000 and a 10% deductible, the insured would be responsible for $10,000 (which is 10% of the loss), and the insurer would then cover the remaining $90,000.

This type of deductible is commonly found in specific insurance policies, especially in property coverage where losses can significantly vary. The percentage deductible aligns the insured's financial responsibility with the overall size of the claim, which can help to mitigate smaller claims and control loss ratios for insurers.

The other options describe different types of deductibles but do not accurately capture the essence of a percentage deductible. A fixed fee is a flat deductible, while a variable amount based on the type of loss doesn't specifically refer to a percentage. A deductible that increases with the claim size indicates a different deductible structure that is not consistent with the concept of a percentage deductible.