What does "deductible" refer to in insurance terms?

In insurance terminology, "deductible" refers to the out-of-pocket expense that a policyholder is required to pay before the insurance coverage kicks in. This means that if a policyholder files a claim, they must first contribute a specific amount towards the loss or damage before the insurance company pays the remainder. For example, if someone has a $500 deductible and they experience a covered loss of $2,000, they would need to pay the first $500, and the insurance would then cover the remaining $1,500.

Understanding the concept of a deductible is crucial because it affects the overall cost structure of insurance policies and influences a policyholder's financial responsibility in the event of a claim. Deductibles can vary widely among different policies and often correspond to the overall premium a policyholder may pay, where higher deductibles typically result in lower premium costs and vice versa.