How is "deductible" defined in insurance terms?

In insurance terms, a "deductible" refers to the specific amount that the insured is required to pay out of their own pocket before the insurance coverage begins to cover any remaining costs. This means that when a policyholder files a claim, they must first absorb the cost up to the deductible amount, after which the insurer will take over the payment for the rest of the covered expenses, subject to the terms of the policy.

For example, if a policy has a deductible of $1,000, and the insured incurs a loss that costs $5,000 to repair, the policyholder would pay the first $1,000, while the insurance company would only pay the remaining $4,000. The deductible serves as a cost-sharing mechanism between the insurer and the insured and can also help to prevent small claims, ultimately helping to keep premium costs lower. This concept plays a critical role in various types of insurance, including auto, health, and property insurance.