What is the purpose of the deductible clause in an insurance policy?

The purpose of the deductible clause in an insurance policy is to outline the out-of-pocket expense that the policyholder must pay before the insurance coverage begins to cover the remaining costs associated with a claim. This means that if a loss occurs, the insured individual will be responsible for paying a specified amount initially, which reduces the overall payout burden on the insurer. By incorporating a deductible, insurance companies encourage policyholders to take prevention measures and to share in the financial responsibility of their insurable risks. This mechanism can also help in managing premium costs, as policies with higher deductibles typically have lower premiums.

The deductible serves as a critical aspect of the policy, setting clear expectations for both the insurer and the insured about the financial responsibilities in the event of a claim.