What does a deductible represent in an insurance policy?

A deductible represents the amount the insured must pay out-of-pocket before their insurance coverage begins to pay for a claim. Essentially, it is a financial responsibility that the policyholder must fulfill when they make a claim. This means that if a loss occurs, the insured first pays the deductible amount, and only then does the insurance company cover the remaining costs up to the policy limits.

Deductibles are important as they help reduce the financial burden on the insurance company as well as encourage the policyholder to be mindful and responsible regarding claims. They serve to minimize minor claims which could increase administrative costs for insurers, allowing them to keep premiums more affordable.