What does the term "deductible" mean in insurance?

In insurance terminology, the term "deductible" refers to the specific amount that the insured must pay out of pocket before the insurance company begins to cover the remaining costs associated with a claim. This concept serves to share the financial burden between the insurer and the policyholder, ensuring that the insured has a vested interest in managing risk and making fewer minor claims. For instance, if a policy has a $500 deductible and a policyholder incurs a claim of $2,000, they would need to first pay $500, after which the insurer would cover the remaining $1,500.

The deductible is an important aspect of many types of insurance policies, including health, auto, and homeowners insurance, as it can impact the premium amount and the insured's behavior regarding claims. Higher deductibles generally lead to lower premiums, as the insured agrees to take on a larger share of the initial costs.

In contrast, the other options outline different components of insurance but do not accurately define a deductible. For example, there are maximum benefits associated with policies, the percentage of coverage pertains to how much an insurer will pay, and premiums are the amounts paid to maintain coverage. None of these concepts align with the definition of a deductible.