What does a deductible refer to in insurance terms?

In insurance terminology, a deductible is the specific amount of money that a policyholder is required to pay out-of-pocket before their insurance coverage kicks in for a claim. It serves as a means of sharing the risk between the insurer and the insured. By having a deductible, the insured is responsible for a portion of any loss, which can encourage more prudent behavior when it comes to filing claims.

When a claim is made, the insurer will start coverage only after the amount of the deductible has been subtracted from the total claim cost. For instance, if a car repair costs $1,000 and there is a $200 deductible, the policyholder would pay $200, and the insurance company would cover the remaining $800. This mechanism helps control insurance costs and mitigate minor claims that might otherwise be filed.

The other definitions do not encapsulate the concept of a deductible accurately. The total amount of a policy's coverage reflects the maximum benefit the insurer will pay, while the amount paid by the insurer for a claim pertains to the insurer's responsibility following the deductible. Additionally, the maximum limit of an insurance policy highlights the cap on coverage rather than the insured's obligation before coverage applies.