A property policy contains a $5,000 franchise deductible. A covered loss of $4,500 occurs, followed by a separate covered loss of $7,000. Ignoring all other policy terms, how much does the insurer pay in total?

Why this is the answer

A franchise deductible works as a threshold: if the loss is below the franchise amount the insurer pays nothing, but once the loss reaches or exceeds the franchise the insurer pays the full loss with no deductible subtracted. Loss 1 of $4,500 is below the $5,000 franchise, so the insurer pays $0. Loss 2 of $7,000 exceeds the franchise, so the insurer pays the full $7,000. Total = $7,000.