In insurance terms, what is a 'deductible'?

A deductible is a specific amount that the insured must pay out-of-pocket before an insurance policy begins to provide coverage for claims. In this context, the insured is responsible for this initial cost, which must be satisfied before the insurer will pay any benefits. This mechanism serves to share the risk between the insurer and the insured, as it requires the insured to bear a part of the cost before insurance kicks in, thus discouraging minor claims and helping to keep premiums lower.

The other choices refer to different aspects of insurance. For example, the amount paid by the insurer is the policy benefits after the deductible has been met, while the monthly premium cost is the amount an insured pays regularly to maintain coverage. An out-of-pocket limit refers to the maximum amount the insured would have to pay during a policy period for covered services, which is distinct from the deductible. Understanding the role of a deductible is key in grasping how insurance policies function financially, both for the insured and the insurer.