In property and casualty insurance, what is the term for the amount the insured must pay before the insurer covers additional loss?

The term that refers to the amount the insured must pay before the insurer begins to cover any additional loss is known as a deductible. A deductible is a specified dollar amount that is subtracted from the loss before any insurance payments are made. It serves as a means of cost-sharing between the insured and the insurer, encouraging the insured to be mindful of smaller claims that they can handle independently.

In the context of property and casualty insurance, the deductible is often applied in the event of a claim, ensuring that the insured has a financial stake in minimizing losses and encouraging responsible behavior regarding their property. Once the deductible is met, the insurer covers the remainder of the claim up to the limits of the policy. This mechanism helps to keep insurance premiums more affordable, as higher deductibles can lead to lower premium costs.

Understanding the concept of a deductible is crucial for policyholders, as it directly affects their financial obligations when faced with a loss. In contrast to this definition, a premium is the amount paid for the insurance policy itself, a copayment typically applies in health insurance scenarios where the insured pays a fixed amount for services, and an out-of-pocket maximum refers to the cap on total expenditures by the insured during a policy year, beyond which the insurer would cover all