What does the term "deductible" mean in the context of auto insurance?

In the context of auto insurance, the term "deductible" refers to the out-of-pocket amount that the insured is responsible for paying before the insurance policy begins to cover the remaining costs associated with a claim. For example, if an individual has a deductible of $500 and experiences a covered loss amounting to $2,000, they would first pay the $500 deductible, and then their insurance would cover the remaining $1,500. This arrangement encourages policyholders to take on some of the financial risk associated with potential losses, while the insurance helps mitigate larger financial burdens.

The understanding of the deductible is essential for policyholder decision-making when selecting coverage options and evaluating potential out-of-pocket expenses in the event of a claim.