How do "deductibles" affect claims payments?

The correct response highlights that the insured is responsible for paying the deductible amount before any claims payments are disbursed by the insurance company. In essence, a deductible is a predetermined amount that a policyholder must first cover out of pocket when they file a claim. This means that if a loss occurs, the insurer will subtract the deductible from the total claim amount when determining the payout.

For example, if a policyholder experiences a covered loss amounting to $5,000 and has a deductible of $1,000, they will need to pay the first $1,000. The insurance company would then provide compensation for the remaining $4,000. This structure encourages policyholders to use insurance wisely, as they are financially invested in the claim up to the deductible amount.

While deductibles can apply to various types of insurance policies, they are particularly common in property and casualty insurance, affecting how claims are paid without eliminating the necessity for the insured to contribute to their own risk management.