What is meant by the term "deductible" in an auto insurance policy?

In an auto insurance policy, the term "deductible" refers to the out-of-pocket amount that a policyholder must pay before their insurance coverage kicks in to cover the remaining costs of a claim. Essentially, it is the amount the insured is responsible for paying when making a claim, which helps to share the financial risk between the insurer and the insured. By having a deductible, insurers can encourage policyholders to take precautions and minimize risk, as paying out of pocket may prompt individuals to be more cautious in preventing losses.

This definition is critical because it establishes the financial responsibility that lies with the policyholder before they receive insurance benefits. Understanding this concept helps policyholders make informed decisions about their coverage options, including selecting an appropriate deductible that balances premium costs with potential out-of-pocket expenses in the event of a claim.