What is a "deductible" in an insurance policy?

A deductible is a specific amount that an insured individual is required to pay out-of-pocket for covered expenses before the insurance company starts to pay benefits. This amount is predetermined in the insurance policy and serves to encourage responsible use of insurance by ensuring that the policyholder shares some of the costs associated with claims. By having a deductible, insurance companies can reduce the number of minor claims they process, which can help keep premium costs lower for their policyholders.

The concept of a deductible is central to many types of insurance, including health, auto, and homeowner’s insurance. It represents a cost-sharing mechanism that helps manage risk and can often vary based on the specifics of the insurance plan. Depending on the policy, deductibles can also be annual or per incident, influencing how policyholders approach their healthcare and financial planning.