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

The term "deductible" in an insurance policy refers to the out-of-pocket cost that the policyholder must pay before the insurance company begins to cover any expenses related to a claim. This means that if you have a deductible of a certain amount, you are responsible for paying that amount first when you experience a loss or file a claim. Only after you have met your deductible will the insurer start to offer coverage for remaining costs, up to the limits outlined in the policy.

The concept of a deductible is designed to share the risk between the insurer and the insured, encouraging responsible behavior by making policyholders more mindful of their claims. Deductibles can vary based on the type of insurance and the specific policy, and they can also influence the premium amount—the higher the deductible, the typically lower the premium, since the insured is assuming more of the upfront cost in the event of a claim.