In property insurance, what does the term "deductible" refer to?

In property insurance, the term "deductible" specifically refers to the amount that the policyholder must pay out-of-pocket before the insurance company begins to cover the remaining costs associated with a claim. This means that if there is a covered loss, the policyholder will first need to pay the deductible amount specified in the policy. Only after that amount is paid will the insurer step in to pay for the remaining eligible costs, up to the limits of the policy.

This concept serves several purposes, including reducing the number of small claims filed, which helps keep overall insurance costs lower. Higher deductibles typically lead to lower premium costs, while lower deductibles can result in higher premiums. Understanding how deductibles work is crucial for policyholders to manage their financial exposure when filing claims.