What is a deductible in an insurance policy?

A deductible in an insurance policy refers to the specific amount that the insured is required to pay out of pocket before their insurance coverage will start covering any claims. This mechanism primarily serves to discourage small claims, as the insured must absorb some of the initial financial responsibility. By having a deductible, policyholders are motivated to only file claims for significant losses, thus keeping insurance premiums lower for everyone.

In practical terms, if a policy has a deductible of $500, the insured would pay the first $500 of any covered loss, and the insurance company would then cover the remaining expenses. This concept is fundamental in understanding how personal lines insurance operates, as it delineates the shared risk between the insurer and the insured.