What is the role of deductibles in an insurance policy?

The role of deductibles in an insurance policy is to determine the payment structure in case of a claim. A deductible is the amount the policyholder is required to pay out of pocket before the insurance company covers the remaining costs of a claim. This means that when a claim is made, the insurer will only pay for the amount that exceeds the deductible. For example, if a policyholder has a deductible of $500 and files a claim for $2,000, they would need to cover the first $500, and the insurer would pay the remaining $1,500.

This structure has multiple benefits, such as encouraging policyholders to be more mindful of smaller claims that might not be worth filing, thereby helping to keep insurance costs down for everyone. The use of deductibles balances the risk between the insurer and the policyholder and helps ensure that the coverage is utilized for significant losses rather than minor incidents.