What does a "deductible" mean in an insurance policy?

A "deductible" in an insurance policy refers to the specific amount of money that an insured person must pay out of pocket before the insurance company starts to pay for covered expenses. This means that if an individual has a deductible of, say, $1,000, they will need to pay that amount themselves for eligible claims incurred during the policy period before the insurer contributes to any costs.

This structure is important because it helps to reduce the number of small claims made to the insurance provider, encouraging policyholders to share a portion of the financial burden of their claims. This is particularly relevant in the context of health insurance, auto insurance, and many other types of coverage, as it establishes a balance between the insurer's risk and the insured's responsibility.

Understanding the role of a deductible is crucial for policyholders in budgeting for potential out-of-pocket expenses and in choosing a policy that suits their financial situation.