What defines a "deductible" in insurance?

A deductible in insurance is specifically defined as the amount that the insured must pay out-of-pocket before the insurer will pay for any expenses related to a claim. This means that when a claim is made, the insured is responsible for covering costs up to the deductible amount, and only after this threshold is met does the insurer begin to cover the remaining costs as outlined in the policy.

This concept is crucial in insurance as it helps to reduce the number of small claims made by policyholders, as individuals may think twice before filing claims for minor damages knowing they must cover the deductible first. It also serves to lower the premium cost since higher deductibles can typically result in lower insurance premiums.

Understanding deductibles is essential for policyholders to make informed decisions about their coverage options and the financial responsibility they are willing to assume in the event of a claim.