Insurers rarely pay from the first dollar of every loss. A deductible is the amount the policyholder must bear before the insurer begins to pay. It applies per claim or per occurrence and is subtracted from the covered loss to determine the insurer’s payment.

Deductibles reduce premiums by eliminating small claims and giving the insured a financial incentive to prevent losses. Higher deductibles produce larger premium credits. In property insurance the deductible may be a fixed dollar amount or a percentage of the insured value; percentage deductibles are common for wind and earthquake.

Some policies offer deductible options that can be changed at renewal. Tracking unpaid deductibles is a routine part of personal and commercial budgeting after a loss. Clear understanding of how the deductible interacts with limits and coinsurance prevents unpleasant surprises at claim time.

• Amount paid by the insured before insurance responds
• Reduces premium and small-claim frequency
• May be fixed or a percentage of value
• Applies per claim or per occurrence