What is a common limitation of franchise deductibles on insurance policies?

The correct answer highlights a critical aspect of franchise deductibles in insurance policies. Franchise deductibles are structured in such a way that they apply only to claims that exceed a certain threshold or limit. If the loss is below this specified amount, the franchise deductible does not apply, meaning the insured must cover the initial expenses out-of-pocket for damages until they reach that threshold. This can lead to a financial burden since the policyholder may have to cover significant portions of a claim if the loss is just below the deductible threshold, resulting in unexpected out-of-pocket costs.

The other options do not accurately reflect the nature of franchise deductibles. For instance, stating that they are applied to every claim without exception does not align with how franchise deductibles function; they only kick in when a loss exceeds a certain amount. Saying they increase the premium significantly overlooks how franchise deductibles can occasionally lead to lower premiums compared to traditional deductibles. Lastly, the assertion that they are fixed and cannot be modified by the policyholder is not representative of all franchise deductibles, as some policies may allow for negotiations or adjustments depending on the specifics of the coverage agreement.