Question

John has an auto which is covered for collision losses subject to a $250 deductible. Kate's auto also has collision coverage but her deductible is $500. Which of the following statements describes how a $2,000 collision loss will be paid if it occurs when John borrows Kate's car because his car is in the shop for repairs?
A) John's policy will pay $1,500, and Kate's policy will pay nothing.
B) John's policy will pay $1,750, and Kate's policy will pay nothing.
C) Kate's policy will pay $1,750, and John's policy will pay nothing.
D) Kate's policy will pay $1,500, and John's policy will pay $250.

Answer 1

Answer: D. Kate's policy will pay $1,500, and John's policy will pay $250.

Explanation:

The deductible is the amount that a policy holder has to pay before the insurance company pays the remaining amount.

From the question, we are informed that John has an auto which is covered for collision losses subject to a $250 deductible while Kate's auto also has collision coverage but her deductible is $500.

If a $2,000 collision loss occurs when John borrows Kate's car because his car is in the shop for repairs, since John has a deductible of $500, Kates policy will pay ($2000 - $500) = $1500 and John's policy will pay $250.