Texas Property and Casualty License Practice Exam 2025 - Free Practice Questions and Study Guide

The primary purpose of an insurance deductible is to reduce the premium by sharing the risk between the insurer and the insured. When a policyholder agrees to take on a portion of the loss through a deductible, it lowers the overall risk for the insurance company. This shared risk typically results in lower premium costs for the policyholder, as the insurer can adjust the pricing based on the reduced likelihood of small claims.

Deductibles encourage policyholders to be more cautious and to avoid filing claims for minor losses, as they will need to pay out of pocket before the insurance coverage kicks in. As a result, higher deductibles can often lead to lower premiums, illustrating the balance of risk retention between the insurer and the insured.

The other options do not accurately represent the primary purpose of a deductible, as they focus on different aspects of insurance policy functions. For example, while establishing maximum payouts and increasing coverage limits are important elements of insurance, they are not directly related to the concept of deductibles. Similarly, determining a policyholder's creditworthiness pertains to underwriting factors, unrelated to the function of a deductible.