General Insurance PrinciplesQuestion 177 of 215
A California earthquake endorsement carries a 15% deductible on a $400,000 dwelling limit. After a covered earthquake causes $90,000 in damage, the deductible the insured must absorb is:
a.$60,000
b.$15,000
c.$13,500
d.$0 because percentage deductibles do not apply below the dwelling limit
Explanation
A percentage deductible is a percent of the dwelling (Coverage A) limit, not a percent of the loss. 15% × $400,000 = $60,000 deductible. The insurer would then pay the remaining $30,000 of the $90,000 loss. Percentage deductibles are common on California earthquake and on hurricane policies elsewhere because they significantly reduce insurer exposure to catastrophic events.
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