California Life and Health Insurance Practice Exam

In health insurance, what term is used to describe the maximum amount an insurer will pay for a covered loss?

1. Deductible

2. Limit

3. Copay

4. Coinsurance

The correct answer is: Limit

The term that describes the maximum amount an insurer will pay for a covered loss is known as a limit. This amount establishes the insurer’s financial responsibility under the terms of the policy and plays a crucial role in how claims are processed. When a policyholder incurs a covered loss, the limit defines the upper boundary of the insurance payout, whether it’s per incident or for the lifetime of the policy. Understanding this concept is important because it influences the financial protection that the policyholder can expect in the event of a loss. In contrast, a deductible is the amount a policyholder must pay out of pocket before the insurance kicks in, while coinsurance refers to the percentage of costs that the insured pays after the deductible has been met. A copay is a fixed amount that a insured must pay for certain types of medical services, such as doctor's visits or prescriptions. These terms all involve different aspects of cost-sharing in health insurance, but they do not specifically denote the maximum payout the insurer will provide for a loss, which is the primary concept associated with the term limit.