What is 'deductible' in insurance policies?

The term "deductible" in insurance policies refers to the amount that a policyholder must pay out of pocket before the insurance coverage kicks in for a claim. This means that when a claim is made, the insurer will only pay the amount of the claim that exceeds the deductible. For example, if a policy has a $500 deductible and a policyholder files a claim for $2,000, the insurer would pay $1,500 after the policyholder has paid the first $500 themselves.

This concept is fundamental in understanding how insurance works, as it directly affects the overall cost of insurance and the financial responsibilities of the policyholder. The deductible can also influence the premiums; often, lower deductibles correlate with higher premiums and vice versa. Understanding this helps individuals make informed choices about their insurance coverage and manage potential out-of-pocket expenses effectively.