In the context of insurance, what does 'deductible' mean?

In insurance terminology, a 'deductible' refers to the specific amount that the insured is required to pay out-of-pocket before the insurance company starts to pay for covered expenses. This means that if a claim is filed, the insured must first pay the deductible amount for the insurer to contribute toward the remaining costs.

For example, if a person has a deductible of $500 and incurs a claim of $2,000, they must pay the initial $500, and then the insurer would cover the remaining $1,500, as long as the claim falls within the terms of the policy. Deductibles are common in various types of insurance, including health, auto, and homeowners insurance, and they serve to reduce the number of small claims an insurer has to handle, thus keeping overall insurance costs more manageable.

The other options describe different aspects of insurance but do not accurately define a deductible, which is characterized by the out-of-pocket payment requirement prior to any insurer payout.