What is the function of a "deductible" in an insurance policy?

A deductible in an insurance policy serves as the amount that the policyholder must pay out-of-pocket before the insurance coverage begins to take effect. This means that when a claim is made, the insurer will only start paying for the covered expenses after the deductible has been met. It is essentially a cost-sharing mechanism that encourages policyholders to be mindful of their claims, as they will be responsible for the initial portion of the loss or damage.

The rationale behind deductibles is to reduce the frequency of small claims and promote responsible use of insurance. They can vary based on the policy, and higher deductibles generally result in lower premium costs for the policyholder. This concept helps to balance risks between the insurer and the insured, ensuring that the insured has a stake in the process and discouraging frivolous claims.