What are 'deductibles' in the context of insurance policies?

Deductibles in insurance policies refer to the amount a policyholder is required to pay out of pocket when filing a claim before the insurance coverage kicks in to cover the remaining costs. This concept functions as a cost-sharing mechanism between the insurer and the insured, encouraging policyholders to act prudently regarding claims and minimizing minor claims that could be costly for the insurer to process.

When a policyholder understands their deductible, they can better assess the potential financial implications of filing a claim. For example, if someone has a deductible of $500 and experiences a loss that costs $2,000 to repair, they would first pay the $500, and the insurer would cover the remaining $1,500.

The other choices do not accurately describe deductibles. The total amount of premiums paid refers to the total costs for maintaining the insurance, while the percentage of losses shared with insurers does not reflect the specific out-of-pocket expense applicable when a claim is filed. Additionally, the minimum period that a policyholder must maintain coverage pertains to policy duration rather than the concept of deductibles.