State Farm Fire Independent Policy Practice Exam

Which situation correctly describes the process of applying the deductible on a HO-3 policy?

1. A. The deductible is applied to the total loss amount.

2. B. Any coverage or special limits are then deducted from the total loss.

3. C. The amount payable to the insured is determined by a combination of steps.

4. D. The deductible is applied last after all limits are calculated.

The correct answer is: C. The amount payable to the insured is determined by a combination of steps.

The situation that accurately describes the process of applying the deductible on an HO-3 policy is that the amount payable to the insured is determined by a combination of steps. This involves calculating the total loss, applying any applicable coverage limits and special limits, and then subtracting the deductible from the remaining amount. In an HO-3 policy, the deductible is not simply subtracted from the total loss amount before applying coverage limits. Instead, the process includes several key stages: first, assessing the total value of the loss; second, determining if any specific limits come into play based on policy provisions; and finally, applying the deductible to arrive at the final payout after all applicable calculations have been completed. Understanding this multi-step approach is crucial as it ensures that all elements of the policy are correctly considered before determining the compensation due to the insured.