What is a deductible in an auto insurance policy?

A deductible in an auto insurance policy is the amount that the insured is required to pay out-of-pocket before the insurance company contributes to a claim. This concept serves to establish a cost-sharing arrangement between the insurance provider and the policyholder. By having a deductible, the insured takes on some financial responsibility, which can discourage small claims and keep premiums lower overall.

Understanding the function of a deductible is crucial for policyholders, as it directly affects their claim experience and potential out-of-pocket expenses in the event of an accident or damage. The amount of the deductible can vary and is often set when the policy is purchased; a higher deductible generally results in lower premium costs, while a lower deductible results in higher premiums.