What is a deductible in terms of insurance?

A deductible in terms of insurance refers to the amount that the insured must pay out-of-pocket before the insurance company begins to cover the remaining costs of a claim. This means if you file a claim, you are responsible for paying the deductible amount first, after which the insurance coverage kicks in to pay for the rest of the eligible expenses.

This concept is important as it helps to reduce the number of small claims, allowing insurers to keep premiums more affordable. The presence of a deductible encourages policyholders to be more cautious about their claims, as they must first bear a portion of the costs prior to insurance assistance.

In contrast, the other options do not accurately represent the function of a deductible. For example, a maximum coverage limit refers to the total amount the insurer will pay for covered losses, while a fixed percentage of costs implies a copayment structure that differs from how deductibles operate. Understanding deductibles is crucial for making informed decisions about insurance policies and managing personal financial responsibilities.