What does the term "deductible" refer to in an insurance policy?

The term "deductible" in an insurance policy specifically refers to the amount that a policyholder must pay out of their own pocket before the insurance coverage begins to pay for a claim. This means that if a policyholder experiences a loss or damage that would be covered by their policy, they are responsible for covering the deductible amount; only after that amount has been paid will the insurer step in to cover the remaining eligible costs.

This structure serves to encourage policyholders to manage risks and avoid filing small claims, as they must first incur some financial responsibility. The deductible can vary depending on the policy and the agreed terms, and it can affect the premium; typically, higher deductibles may lead to lower premium costs because the insurer’s risk is diminished.