What does "deductible" mean in insurance policies?

In insurance policies, a "deductible" refers to the specific amount that the policyholder is required to pay out-of-pocket for a claim before the insurance company steps in to cover the remaining costs. This concept is integral to the functioning of many insurance policies, as it helps to define the responsibility of the insured in the event of a loss.

When a policy features a deductible, it means that the insurance company will not contribute to the claim until the deductible amount is reached. For instance, if a policy has a $1,000 deductible, the policyholder is responsible for covering the first $1,000 of any losses incurred. Only after this threshold has been met will the insurance provider pay out according to the terms of the policy.

Understanding deductibles is essential for policyholders, as it impacts both their potential out-of-pocket expenses in the event of a claim and their insurance premiums. Typically, higher deductibles can lead to lower premiums because the policyholder is agreeing to take on more risk themselves.