A contractor carries $500,000 in general liability insurance. The policy has a $1,000 deductible. A claim for $15,000 is filed. How much will the insurance company pay?
Correct Answer
C) $14,000
The insurance company pays the claim amount minus the deductible: $15,000 - $1,000 = $14,000.
Why This Is the Correct Answer
A deductible is the amount the insured (contractor) must pay out of pocket before the insurance company pays. The insurer pays the claim amount minus the deductible: $15,000 − $1,000 = $14,000. The $500,000 policy limit is not relevant here because the $15,000 claim is well below it.
Why the Other Options Are Wrong
Option A: $15,000
$15,000 would be the payout only if there were no deductible. Since a $1,000 deductible applies, the contractor absorbs the first $1,000 and the insurer pays the remainder.
Option B: $16,000
$16,000 is more than the claim amount — insurance companies never pay more than the actual loss unless additional coverage provisions apply (which are not mentioned here). Adding the deductible to the claim amount is a conceptual error.
Option D: $0
$0 would only apply if the claim were below the deductible, if the claim were excluded by the policy, or if coverage limits were exhausted. None of those conditions apply here.
Memory Technique
Insurer pays = Claim − Deductible. Think of the deductible as what you 'deduct' from the insurer's check: $15,000 − $1,000 = $14,000. The policy limit is just a ceiling — irrelevant when the claim is far below it.
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