What is a deductible in an insurance policy?

A deductible in an insurance policy is the amount that a policyholder must pay out-of-pocket for covered expenses before the insurance company begins to pay for claims. This is a common feature in various types of insurance, including health, auto, and homeowners insurance. For instance, if an individual has a health insurance policy with a $1,000 deductible, they would need to pay the first $1,000 of their medical expenses before the insurance coverage activates, meaning that the insurance company will start to cover costs afterward.

Understanding the concept of a deductible is essential because it influences the overall cost of insurance and how much a policyholder may need to budget for unexpected expenses. Higher deductibles often lead to lower monthly premiums, while lower deductibles usually mean higher premiums. Therefore, knowing how deductibles work helps individuals make informed decisions when selecting an insurance policy.