What is a deductible in an insurance policy?

A deductible in an insurance policy refers to the specific amount that a policyholder must pay out of their own pocket for services or claims before the insurance coverage begins to pay. This amount is usually preset in the policy and is designed to share the risk between the insurer and the insured. For example, if a policy has a deductible of $1,000, the policyholder must pay that amount for damages or losses before the insurance company starts to cover the remaining costs.

This mechanism helps to lower premiums since it requires policyholders to bear some of the initial costs of a claim, which can help reduce the number of minor claims made. Understanding how deductibles work is crucial for policyholders when choosing an insurance plan, as higher deductibles typically correspond to lower premium costs and vice versa.