An insured has a Personal Automobile Policy with $250 deductible Collision coverage and $100 deductible Other Than Collision coverage. The insured runs a stop sign and hits another car. There is $1,300 worth of damage to the insured's car. How much would the insurer pay for the damage to the insured's car?

Rationale

$1,050.

The insurer would pay $1,050 for the damage to the insured’s car after applying the deductibles for Collision coverage. With a $250 deductible for Collision coverage on $1,300 worth of damage, the payout is calculated by subtracting the deductible from the total damage amount.

A ($0) YOUR ANSWER

This choice suggests that the insurer would pay nothing for the damage, which is incorrect. The insured has Collision coverage that applies to the damages incurred from running the stop sign. Although the insured must pay a deductible, the insurer still covers the remaining damage.

B ($1,050) CORRECT

This is the correct answer. Starting with $1,300 in damages, the $250 Collision deductible is subtracted, resulting in a payout of $1,050 from the insurer. This reflects the terms of the policy, which requires the insured to cover the deductible amount before the insurer pays for the remaining damages.

C ($1,200) YOUR ANSWER

This choice incorrectly assumes that the deductible is $100 instead of the actual $250 for Collision coverage. After applying the correct deductible, the payout cannot be $1,200, as that would leave out the necessary reduction for the deductible from the total damage.

D ($1,300) YOUR ANSWER

This option implies that the insurer would cover the full amount of damage without applying the deductible. However, since the policy has a $250 deductible, the insurer cannot pay the entire damage amount; thus, this choice is incorrect.

Conclusion

In this scenario, the insurer pays $1,050 for the damage to the insured's car after deducting the Collision policy's $250 deductible from the total damage amount of $1,300. Understanding how deductibles affect insurance payouts is crucial for interpreting coverage correctly.

$1,050.

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