South Dakota Crop Insurance Practice Exam

What does the "excess of loss" clause in a crop hail policy refer to?

1. The premium cost

2. The deductible

3. The payout limit

4. The policy coverage

The correct answer is: The deductible

The "excess of loss" clause in a crop hail policy specifically refers to the deductible. This clause is designed to limit the insurer's liability by specifying that the insurer will only cover losses that exceed a certain threshold, which is the deductible amount. Thus, before any payment is made by the insurance company, the loss must surpass this defined limit. In this way, the deductible serves as a mechanism to share the risk of loss between the insurance provider and the policyholder. It ensures that the insured retains some responsibility for minor losses while the insurer takes on the greater losses beyond this cap. Understanding this concept is essential for policyholders, as it affects both the risk they retain and the conditions under which they can expect to receive compensation for losses under their policy.