What is a deductible in insurance terms?

In insurance terms, a deductible is the amount the insured is required to pay out of pocket before the insurance company begins to cover the costs of a claim. This means that when an insured person submits a claim, their insurer will first subtract the deductible amount from the total claim amount. For example, if an insured individual has a deductible of $1,000 and they incur a loss of $5,000, they will pay the first $1,000, and the insurance company will cover the remaining $4,000.

This concept is crucial because it helps to mitigate the number of small claims, which can be costly for insurers to process, and encourages insured individuals to take responsibility for smaller risks. By having a deductible in place, it also aligns the interests of both the insured and the insurer, promoting cautious behavior regarding how, when, and why claims are made.

The other options do not accurately represent what a deductible is. The total amount for premiums refers to how much an insured pays to maintain their coverage, while the maximum payout of an insurance policy pertains to the limit a policy will cover and does not relate to the out-of-pocket costs the insured must pay first. The rate of depreciation on a vehicle refers to how much value the vehicle loses