What does a 'deductible' refer to in an insurance claim?

A deductible refers to the portion of a claim that the insured is responsible for paying out-of-pocket before the insurance company begins to cover the remaining costs. This amount is subtracted from the total amount of the claim during the settlement process. For example, if a policy has a deductible of $500 and the insured has a covered loss of $2,000, the insurer would only pay $1,500, since the insured must first cover the $500 deductible.

This concept is fundamental in insurance as it helps mitigate minor claims and encourages policyholders to take care of their property, knowing they will need to cover a portion of any loss. The deductible can also influence the premium; typically, the higher the deductible, the lower the premium, and vice versa. Understanding the role of deductibles is essential for anyone involved in handling insurance claims, as it directly affects the payout process and the insured's financial responsibility.