What is a deductible in an insurance policy?

A deductible in an insurance policy is the amount you must pay out of pocket before your insurance coverage kicks in for a claim. This means that if you incur a loss or damage that is covered by your policy, you will first pay this specified amount and then the insurance company will cover the remaining costs up to the policy limit. Deductibles are commonly used in various types of insurance, including property insurance, to encourage policyholders to take some responsibility for their claims and to help keep insurance premiums lower.

Understanding this concept is important for policyholders because it affects the overall financial responsibility in the event of a claim. When choosing a policy, knowing the deductible amount is crucial, as it can significantly impact the amount of compensation you actually receive after a loss occurs. The other options do not accurately describe what a deductible is, highlighting its unique role in the insurance process.