A deductible is the amount a policyholder pays before an insurer begins paying a covered claim.
For example, with a $500 deductible, the insured generally pays the first $500 of a covered loss and the insurer pays the remaining eligible amount, subject to the policy’s limits and exclusions. Deductibles are common in auto, homeowners, health, and commercial insurance.
A deductible is different from a premium. The premium is the price paid to keep coverage in force, while the deductible applies when a covered loss occurs. A copayment or coinsurance amount in health insurance can also work differently from a standard property deductible.
Policies with higher deductibles often have lower premiums because the policyholder retains more of the initial risk. The exact operation depends on the wording of the contract, including whether the deductible applies per claim, per event, or over a policy period.