Deductible
The amount a policyholder pays out of pocket before insurance coverage kicks in for a claim.
What is Deductible?
A deductible is the amount an insurance policyholder must pay themselves before the insurance company begins covering a claim. For example, a $1,000 auto collision deductible means the first $1,000 of repair costs is the policyholder's responsibility; the insurer covers the remainder up to policy limits. Higher deductibles lower monthly premiums because the policyholder absorbs more risk. Deductibles apply to auto, homeowners, health, and many other insurance types. In health insurance, the deductible resets annually and applies to most services before coinsurance kicks in. Choosing the right deductible involves balancing premium savings against the financial ability to cover the deductible amount in a worst-case scenario.
Example
Choosing a $2,500 vs $500 auto deductible might save $200/year in premiums. The break-even point is 10 years — only worthwhile if you expect fewer than one at-fault accident per decade and can comfortably cover $2,500 out of pocket.
Source: NAIC — Insurance Basics