Compliance ExplainedA deductible is the amount a policyholder must absorb before insurance begins paying toward a covered loss. It is part of the cost-sharing structure built into many insurance policies.
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The concept matters because it directly affects how claims are paid and how policies should be compared. Many misunderstandings about insurance come from confusing deductibles with premiums or coverage limits.
What It Means in Practice
In practical terms, the deductible represents the initial portion of a covered loss that the policyholder is responsible for.
- Loss amount: $5,000
- Deductible: $1,000
- Potential insurer payment: up to $4,000
Types of Deductibles
- Fixed deductible
- Percentage deductible
- Per-claim deductible
- Aggregate deductible
How Deductibles Relate to Other Terms
Key takeaway:
A deductible is the portion of a covered loss that the policyholder absorbs before insurance begins paying.