Deductible

A deductible is a portion of an insurance claim that is the responsibility of the insured party. This amount may be fixed, or a percentage of the total claim. The insurer reduces the amount of any payment to the insured by the amount of the deductible. Deductibles are a useful tool for insurers, because they eliminate smaller claims up to the amount of the deductible, thereby greatly reducing the administrative costs of the insurer.

For example, a car insurance policy carries a deductible of $500. The insured car owner is involved in an accident that will require $3,000 to repair the car. The car owner must absorb $500 of the cost, so the insurer pays the remaining $2,500. If the accident had caused car damage of $500, the car owner would not file a claim, since he would be responsible for the entire repair bill.

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