Which of the following best describes a deductible in insurance?

A deductible in an insurance policy refers to the amount that a policyholder must pay out-of-pocket for a covered loss before the insurance company begins to make any payments towards the claim. This means that if an individual experiences a loss, they must first cover the cost up to the deductible amount themselves, after which the insurer will cover the remaining expenses for that claim, up to the limits of the policy.

This mechanism is designed to share the risk between the insurer and the policyholder, as it encourages the policyholder to manage small claims without involving the insurance company. Deductibles can vary based on the type of insurance policy—such as health insurance, auto insurance, or homeowners insurance—and can have varying impacts on premium costs. Higher deductibles often lead to lower premium payments, as the policyholder is agreeing to accept more out-of-pocket costs for claims.

Understanding the role of a deductible is crucial when evaluating an insurance policy, as it directly affects how much financial responsibility the insured bears in the event of a loss.