What impact does a deductible have on the amount of loss paid by an insurance company?

A deductible is a specified amount that the insured must pay out-of-pocket before the insurance company covers the remaining costs of a claim. When a loss occurs, the deductible is subtracted from the total loss amount, resulting in a reduced payout from the insurance company. For instance, if the total loss is $10,000 and the deductible is $1,000, the insurance payout would be $9,000. This mechanism is designed to share the risk between the insurer and the insured; it encourages policyholders to be cautious with their claims and helps lower premium costs overall.

While the other options suggest scenarios that do not accurately represent how deductibles function, it is important to focus on the relationship between the deductible and the payout calculation. The deductible effectively lowers the insurer's financial liability, thereby affecting the overall loss payout.