In auto insurance terms, what does "deductible" refer to?

A deductible in auto insurance refers to the amount that the insured must pay out-of-pocket before the insurance coverage kicks in to pay for any remaining costs after an accident or covered event. This amount is specified in the insurance policy and is a critical component in managing risk, as it helps to reduce small claims and encourages the policyholder to take precautions to avoid incidents.

For instance, if a policyholder has a deductible of $500 and incurs a loss of $2,000 in a covered incident, they would pay the first $500 themselves, and the insurance would cover the remaining $1,500. This principle also affects the premium; typically, higher deductibles can lead to lower premium costs, while lower deductibles may result in higher premiums.

Understanding the deductible helps policyholders make informed decisions about their coverage options and manage their finances more effectively in the event of a claim.