What is a deductible in an insurance policy?

A deductible in an insurance policy refers to the specific amount of money that the insured is required to pay out-of-pocket before the insurance company begins to cover the remaining costs of a claim. By establishing a deductible, the policyholder assumes a portion of the risk and expense, which can often result in lower premiums. Deductibles are common in many types of insurance, including health, auto, and homeowner policies.

For instance, if a car repair costs $1,000 and the deductible is set at $500, the policyholder would be responsible for paying the first $500, and the insurance company would pay the remaining $500. Thus, the deductible serves as a financial threshold that determines how much the insurer will contribute after a loss has been incurred. This concept helps mitigate frivolous claims and encourages responsible management of insurance coverage.