What is the meaning of "deductible" in an insurance policy?

In the context of an insurance policy, the term "deductible" specifically refers to the amount that a policyholder is required to pay out-of-pocket before the insurance company will begin to cover the costs associated with a claim. This is a fundamental aspect of many insurance policies, as it establishes the threshold that must be met before any payment from the insurer is activated.

For instance, if a policyholder has a deductible of $500 and submits a claim for a damaged vehicle amounting to $2,000, the insured individual will need to cover the first $500 of the repair costs themselves. Only after this deductible amount has been satisfied will the insurance company contribute towards the remaining $1,500 of the claim.

Understanding the purpose of the deductible is crucial; it helps to mitigate smaller claims from the insurance company, encourages responsible usage of insurance, and often can lead to lower premiums for policyholders who choose higher deductibles.