What is a deductible in an insurance policy?

A deductible in an insurance policy refers to the specific amount of money that the insured must pay out-of-pocket before the insurance coverage begins to pay for covered expenses. This concept is fundamental in managing risk and ensuring that the insured takes on a portion of the financial responsibility for losses.

When a claim is made, the insurer will subtract the deductible amount from the total loss amount, and only then will they cover the remaining balance, according to the terms of the policy. This mechanism serves several purposes: it reduces the number of small claims made to insurers and encourages policyholders to be more cautious because they bear some financial responsibility for any loss.

In contrast, the other choices do not accurately describe what a deductible is. The premium relates to the cost of purchasing the insurance itself, the maximum benefit speaks to the cap on payouts for a policy, and a fee for policy changes does not align with the concept of a deductible at all. Understanding the definition and purpose of a deductible is crucial for anyone navigating the complexities of insurance policies.