Which of the following could be considered a franchise deductible’s financial impact?

The concept of a franchise deductible involves a specific type of deductible that is applied in various insurance policies, often particularly in property or casualty insurance. When a franchise deductible is in place, the insured must pay a certain amount out-of-pocket for claims before the insurer starts to pay.

The choice concerning higher out-of-pocket expenses for policyholders is correct due to the nature of franchise deductibles. Under this system, policyholders could face increased financial burdens because they are responsible for paying a larger share of the claims before the insurance coverage kicks in. This structure results in greater immediate costs for consumers, as they must cover these expenses directly, which can significantly impact their overall financial situation following a loss.

In contrast, increased claim payouts or reduced coverage limits do not accurately capture the essence of franchise deductibles. Increased claim payouts would actually suggest that the insurer is covering more, which is contrary to the purpose of the franchise deductible. Reduced coverage limits imply that the insurance protection is lessened, which is unrelated to deductibles. As for lower premium rates, while it may seem reasonable that higher deductibles lead to lower premiums, franchise deductibles specifically focus on the out-of-pocket expenses being the concern rather than the cost of premiums. Therefore, the primary impact of the