What is a deductible in an insurance policy?

A deductible in an insurance policy refers to the amount that the policyholder is required to pay out-of-pocket before the insurance coverage kicks in and the insurer becomes responsible for paying claims. This means that if a loss occurs, the insured must first cover the expenses up to the deductible amount before the insurance company pays for any remaining costs.

In essence, the deductible serves as a financial threshold that the insured must meet when filing a claim. By including a deductible in an insurance policy, insurers can protect themselves from smaller claims and encourage policyholders to share in the costs of their losses, which can help keep overall insurance premiums lower. This understanding of deductibles is crucial for effective financial planning, as it directly impacts how much one will pay in the event of an insurance claim.