What is an insurance policy deductible?

A deductible in an insurance policy is the amount that the insured must pay out of pocket before the insurance company begins to cover the costs of a claim. This amount helps to reduce the number of small claims and encourages policyholders to be more mindful of their coverage. It essentially acts as a form of cost-sharing between the insurer and the insured.

For example, if a homeowner has a policy with a $500 deductible and incurs a $2,000 loss, they would first need to pay the $500, and then the insurance company would pay the remaining $1,500. This structure helps to keep premiums more affordable, as higher deductibles often lower the premium cost. Overall, understanding the role of a deductible is crucial for policyholders, as it impacts out-of-pocket expenses during a claim process.