What does "deductible" refer to in an insurance policy?

In the context of an insurance policy, a "deductible" refers to the amount of money that the policyholder must pay out-of-pocket before the insurance coverage kicks in. This means that, for any claim made, the insured must first pay the deductible amount themselves. Once this threshold is met, the insurer will begin to pay for covered expenses according to the terms of the policy.

This concept serves as a cost-sharing mechanism between the insurer and the insured, encouraging the insured to take responsibility for a portion of their healthcare expenses and potentially reducing unnecessary claims. For example, if a health insurance policy has a deductible of $1,000, the policyholder will need to pay that amount for healthcare costs in a policy year before the insurance begins to cover eligible expenses.

The other options refer to different aspects of insurance policies: the amount the insurer pays towards a claim is not the same as a deductible; the maximum limit of coverage relates to the total amount an insurer will pay in the event of a claim; and the total annual premium is the amount paid for the policy itself, separate from the deductible. Each of these terms essential to understanding insurance policies, but they do not define the deductible itself.