In insurance, the policyholder’s stated out-of-pocket amount before the insurer pays covered claims is the deductible.
A deductible is a specified amount that the insured must pay toward a covered loss before the insurer contributes. For example, with a $500 auto-insurance deductible, the policyholder generally pays the first $500 of an eligible claim and the insurer covers the remaining covered amount, subject to the policy’s terms.
Deductibles help divide risk between the insurer and policyholder. Policies with higher deductibles often have lower premiums because the customer retains more of the initial loss risk. Some policies use separate deductibles for different hazards, such as collision and comprehensive auto coverage or wind and hail in property insurance.
A deductible is not the same as a premium, which is the price paid for insurance. It also differs from a copayment, usually a fixed payment for a service, and coinsurance, which is typically a percentage of covered costs after any deductible.