What is the main purpose of an insurance deductible?

The main purpose of an insurance deductible is to ensure that insured parties take responsibility for minor losses. A deductible is the amount a policyholder must pay out of pocket before the insurance coverage kicks in for a claim. This mechanism serves several important functions.

First, it encourages policyholders to be mindful of the risks they take and to avoid making claims for minor incidents that they can afford to cover themselves. By making the insured responsible for a portion of the loss, it discourages frivolous claims and helps keep overall insurance costs down.

Second, deductibles make insurance more equitable and sustainable by preventing smaller losses from being processed, which can be costly for insurance companies and ultimately lead to higher premiums for all policyholders. By having a deductible, insurers can focus on larger claims while encouraging responsible behavior among consumers, ultimately promoting a more ethical insurance market.