What is the term for the amount the policyholder must pay before the insurer will cover losses?

The term "deductible" refers to the specified amount that a policyholder is responsible for paying out-of-pocket before an insurance provider will start to cover the remaining costs of a claim. This mechanism is designed to minimize the insurer's risk by ensuring that the policyholder retains some financial responsibility in the event of a loss.

When a claim is made, the deductible amount is subtracted from the total loss, and the insurer will then cover the remaining expenses up to the policy's coverage limit. For example, if the deductible is $1,000 and a policyholder incurs a loss of $5,000, the insurance company will pay $4,000 after the deductible has been satisfied. This arrangement encourages policyholders to avoid making smaller claims, as they would be responsible for the deductible amount first.

Understanding the role of a deductible is crucial for both policyholders and insurance adjusters, as it impacts the overall cost of insurance premiums and affects how claims are handled. In contrast, the premium refers to the amount paid by the policyholder for coverage, the coverage limit defines the maximum amount the insurer will pay for a covered loss, and excess typically refers to amounts above a certain limit, but may not apply directly in the context of initial loss responsibilities