A contractor carries a $300,000 general liability policy with a $1,000 deductible. A claim for $15,000 is filed and approved. How much will the insurance company pay?
Correct Answer
B) $14,000
The insurance company pays the claim amount minus the deductible: $15,000 - $1,000 = $14,000. The contractor pays the $1,000 deductible.
Why This Is the Correct Answer
When a claim is approved, the insurance company pays the approved claim amount minus the deductible. The contractor is responsible for the deductible portion. Calculation: $15,000 - $1,000 = $14,000 paid by the insurer. The policy limit of $300,000 is irrelevant here because the claim is well below it.
Why the Other Options Are Wrong
Option A: $16,000
$16,000 would mean the insurer pays the claim PLUS the deductible, which is the opposite of how deductibles work. The deductible is the contractor's out-of-pocket responsibility, subtracted from — not added to — the insurer's payment.
Option C: $15,000
$15,000 is the full claim amount with no deductible applied. If there were no deductible, this would be correct — but the policy specifies a $1,000 deductible, which must be subtracted from the insurer's payment.
Option D: $15,000 minus the deductible
This option '$15,000 minus the deductible' is mathematically equivalent to the correct answer ($14,000) but is presented as a formula rather than a number. On a multiple-choice exam, the calculated numeric answer (B: $14,000) is the correct selection since option D is just a restatement of the formula without evaluating it.
Memory Technique
Deductible = 'Deducted from the insurer's check.' The insurance company writes a check for the claim MINUS your deductible. You pay the deductible directly. $15,000 claim − $1,000 deductible = $14,000 insurer check.
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