What does the term "deductible" refer to in an insurance policy?

In the context of an insurance policy, the term "deductible" specifically refers to the amount that the insured must pay from their own funds before the insurance company will begin to cover any claims. This amount is subtracted from the total claim amount. For example, if a person has a deductible of $500 and they file a claim for $2,000, they will need to pay the initial $500, and the insurance will cover the remaining $1,500.

This concept is important as it influences the cost of the insurance policy. Generally, policies with higher deductibles tend to have lower premiums because the insured is assuming more of the initial financial risk. Understanding deductibles is crucial for policyholders in evaluating their coverage and managing their out-of-pocket costs in the event of a loss.