Colorado Property & Casualty Practice Exam 2026 - Free Property & Casualty Practice Questions and Study Guide

The term "deductible" refers to the initial out-of-pocket expense that a policyholder must pay before the insurance coverage begins to cover the remaining costs of a claim. This concept is fundamental in insurance policies as it aligns the interests of the insurer and the insured—encouraging the insured to apply a degree of care to avoid losses since they retain some financial responsibility.

When a deductible is set in an insurance policy, it means that in the event of a loss, the insured will pay that specified amount from their own funds before the insurer contributes towards the covered damages. For example, if an insured individual has a deductible of $500 and they incur a loss of $3,000, they will need to pay the first $500 out of pocket, and the insurance company will cover the remaining $2,500. This shared responsibility can help keep insurance premiums lower and also reduce the number of minor claims submitted, which can be administratively costly for insurers.

The other options address different concepts in insurance. Total coverage refers to limits on the insurance policy rather than the deductible itself. The annual premium is the cost of buying the insurance policy, separate from the deductible. The value of the property insured relates to the coverage limit or the insured amount but