In the context of insurance, what is a deductible typically used for?

A deductible is an amount that the insured is responsible for paying out-of-pocket before the insurance coverage kicks in for a covered loss. This mechanism is designed to involve the insured in the claims process by requiring them to share in the cost of losses, which can reduce the number of small claims made to insurers.

By having a deductible, policies encourage insured individuals to take appropriate care to avoid losses, as they will incur costs up to the deductible amount. For example, if a policy has a $500 deductible, the insured would need to cover the first $500 of any claim themselves, after which the insurance company would pay the remaining eligible costs.

The other options do not accurately reflect the function of a deductible. While tax implications, maximum loss coverage, or premium percentages may be relevant aspects of insurance policies, they do not define the specific purpose and function that a deductible serves within insurance contracts.