In the context of insurance, what does ‘deductible’ refer to?

In insurance terminology, a 'deductible' is defined as the portion of a claim that the policyholder is responsible for paying out of their own pocket before the insurance coverage kicks in. This means that when an insured event occurs and a claim is made, the deductible amount is subtracted from the total eligible claim amount, and only the remaining balance is covered by the insurer.

For example, if a homeowner has a deductible of $1,000 and their home sustains damage that would cost $5,000 to repair, they will need to pay the first $1,000, while the insurance company would cover the remaining $4,000. This mechanism serves several purposes in the insurance policy: it encourages policyholders to manage their risks wisely and can help keep premiums lower, as it reduces the number of smaller claims processed by insurers.

The other choices do not accurately capture the concept of a deductible. The total premium amount refers to the cost of purchasing an insurance policy, the maximum payout signifies the insurer's limit of coverage, and the waiting period denotes a specified time before coverage is effective, none of which describe the responsibility of the policyholder in relation to claims.