What does the term 'deductible' signify in an insurance policy?

The term 'deductible' in an insurance policy refers to the amount of out-of-pocket expenses that the policyholder must pay before the insurance company starts to cover the remaining costs of a claim. This means that if an insured event occurs, the insured will be responsible for the deductible amount while the insurer will only pay for losses that exceed that deductible amount. For example, if there is a $500 deductible on a policy and a covered loss occurs amounting to $2,000, the insurer would pay $1,500 after the insured has paid the deductible.

Understanding deductibles is crucial for policyholders as it impacts their overall claim payments and out-of-pocket expenses in the event of a loss. It serves to share the risk between the insurer and the insured, which can help to reduce the frequency of small claims submitted to the insurer.