What is a deductible in insurance?

A deductible in insurance is the amount an insured must pay out of pocket before the insurance coverage kicks in for a claim. This is designed to share the risk between the insurer and the insured, encouraging responsible behavior among policyholders. By requiring the insured to absorb a portion of small losses, deductibles help keep insurance premiums more affordable since they reduce the frequency of minor claims made to the insurer.

In this context, choosing the correct definition reflects an understanding of how deductibles function as a cost-sharing mechanism. The other options do not describe what a deductible is. The amount covered by the insurer refers to the insurance payout after the deductible has been paid, not the deductible itself. The total value of the insurance policy relates to the maximum coverage, which isn't the definition of a deductible. Lastly, the liability limit refers to the maximum amount an insurer will cover for a specific claim, further distinguishing it from the deductible concept. Therefore, recognizing that a deductible is the specific amount the insured is responsible for before the insurer pays for a loss is crucial in understanding insurance policies.