Which of the following statements about deductibles is correct?

The correct statement regarding deductibles is that the insured must pay a specified dollar cost first. A deductible is a predetermined amount that the insured is responsible for paying out-of-pocket for covered services before the insurer begins to pay for any claims. This means that once the insured has paid this specified dollar amount, the insurance company will cover the remaining costs associated with the claim up to the limits of the policy.

This approach helps manage risk for the insurance company, as it prevents minor claims that would not be cost-effective to process. Deductibles also encourage policyholders to take financial responsibility for minor expenses.

Other choices may refer to concepts related to insurance but do not accurately describe the nature of deductibles. The concept of a set amount paid annually does not align with the function of deductibles, which are relevant to individual claims rather than an annual payment. Similarly, the idea that the insured pays all expenses before claims are settled mischaracterizes deductibles; it implies that the insured covers the total costs, which is not accurate since deductibles apply only to the initial portion of a covered claim. Lastly, co-insurance refers to the shared cost arrangement between the insured and the insurer after the deductible has been met, which is distinct from how deductibles function.