What is a deductible in an insurance policy?

A deductible in an insurance policy refers to the specific amount that the insured individual must pay out of pocket before the insurance company will begin to cover any remaining costs associated with a claim. This means that in the event of a loss, the insured takes on that initial financial responsibility up to the set deductible amount. For example, if a policy has a deductible of $1,000, the insured must pay the first $1,000 of the cost for repairs or losses before the insurance coverage kicks in to cover anything above that amount.

This mechanism serves to share the risk between the insured and the insurer, encouraging responsible usage of the policy and reducing the frequency of small claims. It also helps to lower the cost of premiums since having a deductible means that the insurer is not responsible for minor expenses. The other options do not accurately define what a deductible is, as they pertain to different aspects of an insurance policy, such as coverage limits or periodic payments.