What is a deductible in an insurance policy?

A deductible in an insurance policy is defined as the amount the insured must pay out of pocket before the insurer begins to cover the remaining costs associated with a claim. This means that if a covered loss occurs, the insured first pays the deductible amount, and any expenses beyond that deductible are then covered by the insurance provider, subject to the policy limits. This mechanism helps to reduce the number of small claims made against the insurer, as policyholders are incentivized to cover smaller expenses themselves.

For example, if a policy has a $500 deductible and the insured incurs $2,000 in covered damages, the insured would initially pay the $500 deductible, after which the insurance company would cover the remaining $1,500. This system provides a shared responsibility between the insurer and the insured, promoting cost control within the insurance industry.