In an insurance policy, what does the term "deductible" mean?

In an insurance policy, the term "deductible" specifically refers to the amount the insured must pay out-of-pocket before the insurance coverage begins to pay for a claim. This means that when a covered loss occurs, the insured is responsible for paying this predetermined amount first. Once the deductible is satisfied, the insurer will then cover the remaining costs up to the limits of the policy.

This mechanism is designed to share the risk between the insurer and the insured. By requiring the insured to pay a portion of the loss, it helps to prevent minor claims and encourages responsible behavior regarding loss events. The correct understanding of a deductible is essential for policyholders to manage their financial responsibilities effectively and to know how much they will be liable for in the event of a claim.