Texas All Lines Adjuster Practice Test

How is a percentage deductible calculated?

1. As a fixed amount based on the policy limit

2. As a percentage of the value of the insured risk

3. As half of the total claim cost

4. As the average cost of damages over the past year

The correct answer is: As a percentage of the value of the insured risk

The calculation of a percentage deductible is determined by taking a specific percentage of the value of the insured risk. This means that when a loss occurs, the deductible amount represents a portion of the total value of the property or asset insured. For instance, if a policyholder has a percentage deductible of 5% on a property valued at $200,000, then the deductible amount would be $10,000 (5% of $200,000). This method of calculating deductibles is common in various insurance policies, as it aligns the deductible amount with the value of the insured asset, ensuring that both the insurance company and the policyholder share in the loss. Therefore, this option accurately reflects how percentage deductibles function, making it the correct answer. In contrast, the other options do not appropriately represent the concept of percentage deductibles. A fixed amount would not fluctuate based on the value of the insured risk, while calculating half of the total claim cost or the average cost of damages over the past year does not relate to the percentage framework that is typically used for deductibles.