What is a 'deductible' in insurance?

A deductible is defined as a specified amount that the insured must pay out of pocket before the insurance provider begins to cover the remaining costs associated with a claim. This mechanism is designed to share costs between the insurer and the insured, encouraging policyholders to manage their risks and avoid small claims. By requiring a deductible, insurance companies can help mitigate losses and keep premiums more affordable.

In context, other options do not represent what a deductible is. The premium discount option involves the reduction in policy costs based on the risk profile or claims history, but it does not relate to the definition of a deductible. The choice about the total amount covered by the insurer refers to coverage limits rather than deductibles, which specifically address the portion that must be paid before the insurer's liability kicks in. Finally, the additional fee for managing a claim pertains to administrative costs rather than the concept of a deductible, which is about the insured's initial financial responsibility before insurance coverage applies.