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

The term "deductible" in an insurance policy refers to the amount that the policyholder is required to pay out-of-pocket before the insurance coverage kicks in and pays for any remaining costs related to a claim. This amount is typically established at the beginning of the policy and serves both as a cost-sharing mechanism between the insurer and the insured and as a way to keep premiums at a manageable level.

Choosing a higher deductible often results in a lower premium because it reduces the insurer's exposure to small claims. Conversely, a lower deductible may lead to higher premiums since the insurer has to cover more of the costs associated with any claims. Understanding deductibles is crucial for policyholders because it impacts how much they ultimately pay when filing a claim.

The other options do not accurately define what a deductible is. The total amount of coverage provided by a policy pertains to the maximum limit of the insurance company’s liability, while the value of claims covered under a policy relates to the types of losses settled under the agreement. The percentage of premium paid at renewal describes a cost element but does not involve the concept of deductibles directly.