In insurance, what is a "deductible"?

A deductible is the specific amount that a policyholder must pay out of pocket toward an insured loss before their insurance coverage kicks in and the insurance company begins to pay for any claims. This mechanism helps mitigate minor claims, encouraging policyholders to take responsibility for smaller expenses. It serves as a form of cost-sharing between the insurer and the insured, ensuring that not every minor issue leads to a claim.

The other options, while related to the world of insurance, do not accurately define a deductible. The total amount insured refers to the coverage limits established in the policy, the payment made to the insurance agent is more associated with commissions or service fees, and the annual fee paid by the policyholder pertains to the insurance premium. Each of these concepts serves a different function in the realm of insurance and does not reflect the definition of a deductible.