What is a deductible in an insurance policy?

A deductible in an insurance policy refers to the specific amount that the insured individual is required to pay out-of-pocket for covered expenses before the insurance coverage begins to pay for any remaining costs. This means that if a policyholder experiences a loss or damage and files a claim, they must first satisfy the deductible amount, and only then will the insurer cover the costs that exceed this deductible up to the limits of the policy.

This mechanism serves several purposes: it reduces the number of small claims filed, as policyholders may choose to handle minor losses themselves, and it encourages responsible behavior by the insured, knowing they will share in the financial responsibility of any claims.

Understanding the function of a deductible is essential because it directly impacts the overall cost of the insurance policy and the out-of-pocket expenses for the policyholder during a claim.