What is the purpose of a deductible in an insurance policy?

The deductible in an insurance policy serves primarily to prevent small claims that could lead to increased premiums for the policyholder. When a deductible is applied, it sets a threshold that must be met before the insurance coverage kicks in. This mechanism discourages policyholders from making minor claims that could burden the insurance system and potentially increase the overall cost for all insured individuals. By requiring the insured to pay a portion of a loss before the insurer pays out, it encourages more responsible behavior regarding the types of claims submitted and helps keep premiums more stable.

In this context, it is essential to recognize that while deductibles play a role in managing costs for insurers, they do not serve to cover only larger claims or impose penalties for false claims. Furthermore, deductibles do not enhance coverage limits; rather, they function as a form of cost-sharing between the insurer and policyholder. This understanding is crucial for both clients and adjusters in navigating insurance policies effectively.