What is the result of 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 claims. This means that when a loss occurs, the insured is responsible for covering the deductible amount first, after which the insurance company pays for any remaining eligible costs up to the policy limit. Deductibles are a common feature in many types of insurance, including health, auto, and homeowners insurance, because they help to reduce the overall cost of premiums by sharing the risk between the insured and the insurer.

This mechanism encourages policyholders to manage smaller claims on their own, ultimately leading to a more sustainable insurance system. It also plays a role in discouraging frivolous claims, as insured individuals may think twice before filing a claim that only slightly exceeds their deductible. Understanding the function of a deductible is essential for anyone navigating their insurance policies, as it directly impacts their financial responsibility in the event of a claim.