What is a Deductible in an insurance policy?

A deductible in an insurance policy is defined as the specific dollar amount that the insured must pay out of pocket before the insurer will begin to cover the remaining costs associated with a covered loss. This means that if a policyholder experiences a loss and files a claim, they are responsible for paying up to the deductible amount first, after which the insurance company will cover the costs beyond that limit, according to the policy terms.

This mechanism is designed to share the risk between the insurer and the insured and serves to reduce the number of small claims made. By requiring the insured to pay a portion of the loss, it incentivizes them to avoid filing claims for minor damages, which can help keep insurance premiums lower for everyone.

The other options presented do not accurately describe what a deductible is: the maximum payout allowed per claim pertains to policy limits, a percentage of the insured property value describes the way some policies calculate the premiums or coverage amounts but not the deductible itself, and the amount the insurer pays before any claims is a misunderstanding of the claims process, as the insurer only pays after the deductible has been applied.