Which statement about deductible effects is correct?

• A. Higher deductibles raise premiums and increase claim frequency.
• B. Higher deductibles have no effect on premiums.
• C. Higher deductibles lower premiums and reduce claim frequency.
• D. Higher deductibles lower premiums but increase claim severity.

Answer: (C)

Raising a deductible shifts more cost to the insured before coverage kicks in. That lowers the insurer’s risk and, to reflect that lower risk, the premium can be reduced. At the same time, the higher out-of-pocket cost makes people think twice about small losses, so fewer claims are filed. So higher deductibles typically lead to lower premiums and a reduced claim frequency. The other choices contradict how deductibles influence risk and behavior: they either claim premiums rise, or claim frequency doesn’t change, or they mix in an effect on severity that isn’t the defining outcome here.