What is the impact of "deductibles" on insurance claims?

Deductibles play a critical role in insurance claims as they represent the portion of a loss that the insured must bear before the insurance company covers the remaining amount. When a loss occurs and a claim is made, the insurer reduces the payout by the amount of the deductible. This means that if a policyholder has a deductible of $1,000 and suffers a loss of $5,000, the insurance company will only pay out $4,000.

The inclusion of deductibles serves multiple purposes: it helps keep insurance premiums lower, as the insurer is not responsible for smaller claims that the insured can cover, and it encourages policyholders to be more cautious to avoid filing minor claims. In essence, deductibles are an essential mechanism that aligns the interests of both the insurer and the policyholder in managing risks and costs associated with insurance claims.