In a PAP, what is the meaning of "deductible"?

The term "deductible" in a Personal Auto Insurance Policy refers to the out-of-pocket amount that the policyholder must pay before the insurance coverage kicks in to pay for a claim. This amount is established in the policy and is subtracted from the total claim amount. For example, if a policy has a deductible of $500 and a resulting claim of $2,000, the insurer will pay $1,500 after the deductible is applied.

This concept is essential as it helps to share the risk between the insurer and the insured. It encourages policyholders to assess the risk and can often influence their insurance premiums; typically, a higher deductible may lead to lower premium costs.

Understanding the deductible is crucial for managing financial expectations in the event of a loss. The other options relate to different aspects of insurance, such as the overall policy coverage, premium, and liability limits, but they do not capture the specific role that a deductible plays in the claims process.