Hawaii Insurance Adjuster License Practice Exam

What is the standard deductible on the Commercial Property Earthquake Causes of Loss form?

1. A flat dollar amount.

2. A percentage of the total claim amount.

3. A percentage of the building value.

4. This varies by insurer.

The correct answer is: A percentage of the building value.

The standard deductible on the Commercial Property Earthquake Causes of Loss form is a percentage of the building value. This approach is typically adopted because earthquake damage can be substantial and unpredictable, making it logical for insurers to associate the deductible with the value of the property. By setting the deductible as a percentage, it ensures that the financial responsibility of the deductible remains proportionate to the potential severity of the loss. This method also facilitates equitable treatment across different properties with varying values, allowing smaller businesses or lower-valued properties to be less financially burdened, and conversely, ensuring that higher-valued properties absorb a bigger share of the risk. Other options do not align with standard practices; for instance, a flat dollar amount would not vary according to the value of the property, which could lead to disparities in coverage and out-of-pocket costs for property owners. While the percentage-based deductible can be a little higher than a flat amount, it is more suitable for the nature of earthquake coverage, reflecting the scale and potential costs associated with such catastrophic events.