What is a deductible in insurance terms?

In insurance terminology, a deductible refers to the specific amount that the policyholder must pay out-of-pocket before the insurance company begins to cover the remainder of the claim. This is a common feature in many types of insurance policies, including health, auto, and homeowners insurance.

When a policy has a deductible, the insured is responsible for paying this amount for any covered expenses each year before the insurer will contribute to the costs. For example, if an individual has a health insurance policy with a $1,000 deductible and incurs $2,500 in medical bills, they would need to pay the first $1,000 themselves, and thereafter the insurance would cover a portion of the remaining expenses according to the policy terms.

The other choices do not accurately represent what a deductible is. The total claim amount paid by the insurance company (first choice) refers to the insurance payout rather than the cost borne by the insured. The overall limit on policy coverage (third choice) is more about the maximum amount the insurer will pay for claims during a policy period, and the annual premium (fourth choice) is the amount the policyholder pays periodically to keep the policy active, not a sum that is paid out in claims.