What does the term "deductible" refer to in an insurance policy?

The term "deductible" in an insurance policy refers to the amount that the policyholder must pay out-of-pocket before the insurance coverage kicks in and the insurer begins to pay for covered losses. This means that, in the event of a claim, the insured is responsible for paying this initial amount, and only the expenses that exceed this deductible will be covered by the insurance company.

For example, if someone has a deductible of $1,000 and they incur $5,000 in damages from a covered event, they will need to pay the first $1,000 themselves, and the insurance will cover the remaining $4,000.

This concept helps to reduce the number of small claims made on insurance policies and encourages policyholders to take care of their property, knowing they will have to bear some cost before insurance assistance begins.