What does the term "deductible" in an insurance policy refer to?

The term "deductible" in an insurance policy specifically refers to the amount that a policyholder must pay out of pocket before their insurance coverage kicks in to pay for a claim. This mechanism is designed to share risk between the insurer and the insured; by requiring the policyholder to cover a portion of the loss, it encourages responsible behavior and deters small claims that could burden the insurance system.

For example, if a policy has a deductible of $500, the policyholder is responsible for the first $500 of any covered claim. If they suffer a loss of $1,000, the insurance company would pay $500, as the policyholder has already satisfied their deductible. This structure is common across many types of insurance, including health, auto, and property insurance.

The other options address different aspects of an insurance policy. The amount an insurer agrees to pay on a claim is typically known as the coverage limit or policy limit. The total sum insured under the policy indicates the maximum amount the insurer will cover in case of a total loss, rather than anything related to deductibles. Lastly, the fee collected at the time of policy issuance generally refers to the premium, which is separate from any deductible requirement.