What does a deductible refer to in an insurance policy?

A deductible in an insurance policy refers to the amount that the insured must pay out of pocket before the insurance coverage kicks in. This means that when a claim is made, the policyholder is responsible for covering this initial sum, while the insurance company covers any remaining expenses beyond that amount, up to the policy limits.

Understanding how deductibles work is crucial because they directly affect the policyholder's premium costs as well. Generally, higher deductibles can lead to lower premium rates, while lower deductibles can increase premiums. This mechanism helps manage risk and keeps insurance premiums affordable for both the insurance provider and the insured.

The other options do not accurately define a deductible. While the total amount of coverage available and the maximum payout are related to the limits of the insurance policy, they do not describe the deductible's function. Similarly, the cost of the insurance policy refers to the premium, which is separate from the deductible.