What is the term for the amount a policyholder must pay out-of-pocket before insurance kicks in?

The amount a policyholder must pay out-of-pocket before their insurance coverage begins to pay for a loss is known as a deductible. This is a standard feature in many insurance policies and serves to share the risk between the insurer and the insured. The purpose of having a deductible is to prevent minor claims from being filed and to encourage policyholders to take care of smaller losses themselves.

For example, if a policy has a deductible of $1,000, the insured must pay the first $1,000 of any claim, after which the insurance company will cover the remaining eligible expenses. This means that the deductible directly reduces the insurer's liability and can also affect the policy's premium; typically, a higher deductible results in a lower premium.

Understanding the role of the deductible is crucial for policyholders, as it influences the overall cost of insurance and impacts decisions on when to file a claim. This term is fundamental in identifying how much financial responsibility the policyholder has before gaining the benefits of their insurance policy.