What does the term 'deductible' refer to in an insurance context?

In the context of insurance, the term 'deductible' specifically refers to the amount that a policyholder must pay out of pocket for covered expenses before the insurance company begins to pay for the remaining costs. This means that until the insured individual pays this specified amount for claims, the insurance provider is not obligated to cover additional expenses related to that claim.

Understanding this concept is crucial because it directly impacts how much policyholders will need to budget for healthcare or other insurance-related expenses. A higher deductible usually means lower premium payments, while a lower deductible often results in higher premium costs. This feature allows individuals to choose an insurance plan that aligns with their financial situation and risk tolerance. For example, someone who rarely needs medical care might opt for a plan with a higher deductible to save on monthly premiums, while a person with ongoing health issues might prefer a lower deductible despite higher premiums to minimize out-of-pocket costs when they seek care.