What does it mean if a policyholder has a deductible?

When a policyholder has a deductible, it refers to the amount that they must pay out-of-pocket towards a loss before their insurance coverage begins to pay. Essentially, it acts as a form of cost-sharing between the policyholder and the insurance company.

For instance, if a policyholder has a deductible of $500 and incurs a loss of $3,000, they would be responsible for paying the first $500, and the insurance company would cover the remaining $2,500. This arrangement is designed to discourage minor claims and to encourage policyholders to take care in preventing losses, as they will be directly impacted by the initial financial burden.

Having a deductible also means that for losses below this amount, the insurance company does not pay anything, placing the financial responsibility entirely on the policyholder. This makes understanding the nature of deductibles essential for managing risk and expectations when filing claims.