What does a "deductible" in an insurance policy refer to?

A "deductible" in an insurance policy is defined as the amount of money that the insured must pay out of pocket before the insurance company begins to cover the rest of the costs associated with a claim. This mechanism serves to reduce the number of small claims that an insurance company needs to process, thereby decreasing overall administrative costs and preventing fraud. It also encourages policyholders to be mindful of the risks they take since they will bear some financial responsibility before coverage applies.

The deductible amount can vary based on the policy and the choice of the insured, and it is an important consideration in determining the premium costs. Overall, understanding the concept of a deductible helps policyholders make informed decisions regarding their coverage and financial planning related to potential claims.