How would you describe a 'lump sum deductible' in terms of insurance payments?

A lump sum deductible refers to a fixed amount that the policyholder is responsible for paying out of pocket for each individual claim before the insurance company will cover the remaining costs. This structure means that, regardless of the total cost of the claim, the insured must first pay this predetermined amount. For instance, if the lump sum deductible is set at $1,000, and the claim incurred is $5,000, the insurance company will only start providing coverage for the amount exceeding that $1,000.

This approach helps manage the risk and cost-sharing between the insurer and the insured. By requiring a fixed deductible per claim, insurance providers can encourage policyholders to be more cautious and selective in their claims, knowing they have a financial responsibility before any coverage kicks in.

The other options do not accurately describe the nature of a lump sum deductible. It does not apply on a per year basis, nor is it dependent on the valuation of the loss. It is also not synonymous with total annual coverage, as a lump sum deductible is about what the insured pays per claim, rather than how much insurance coverage is provided over a year.