What does a deductible represent in an insurance policy?

A deductible in an insurance policy represents a portion of the loss that the insured must pay out-of-pocket before the insurance coverage kicks in. When a policyholder experiences a loss, they are responsible for covering the deductible amount, and the insurer will then cover the remaining costs up to the policy limits. This is a common feature in many types of insurance, including health, auto, and homeowners insurance.

By having a deductible, insurers can reduce the number of small claims they receive, which helps keep premiums more affordable for policyholders overall. The concept of a deductible encourages insured individuals to be cost-effective in their claims, as they have a financial stake in the loss.