What does a 'deductible' represent in an insurance policy?

A deductible in an insurance policy represents the amount that the insured must pay out-of-pocket before the insurer begins to cover any expenses associated with a claim. This provision is designed to reduce the number of small claims and encourages policyholders to share some of the financial responsibility for losses, which can help keep insurance premiums lower.

When a claim arises, the deductible is subtracted from the total claim amount, meaning that only the remaining amount above the deductible is eligible for reimbursement from the insurance company. For example, if there is a $1,000 claim and a $200 deductible, the insured would pay the $200 and the insurer would pay the remaining $800.

This concept is fundamental in understanding how insurance works, as it directly affects the insured's out-of-pocket expenses and the overall cost of premiums. The other options do not accurately describe the role of a deductible.