What does a deductible refer to in the context of insurance?

• A. The total premium paid each year
• B. The coverage limit of a policy
• C. The amount paid out-of-pocket before insurance coverage begins
• D. The final payout amount after a claim

Answer: (C)

A deductible refers to the amount of money that a policyholder must pay out-of-pocket for covered services before the insurance company begins to pay for covered expenses. This means that when an individual incurs healthcare costs or experiences a loss, they are responsible for paying the deductible amount first. Only after this amount has been satisfied does the insurance company start to cover the remaining costs, according to the terms of the policy.

The rationale behind deductibles is to encourage individuals to be mindful of healthcare utilization and costs, as they have a direct financial responsibility before receiving the insurance benefits. This system helps insurance companies manage their risk and potential claims.

In contrast, the other choices provide definitions that do not capture the essence of what a deductible is or how it functions within an insurance policy. The total premium refers to the ongoing payments made for the policy, the coverage limit relates to the maximum amount the policy will pay, and the final payout amount pertains to the insurance company’s payment after a claim has been assessed and processed. Each of these terms highlights different aspects of insurance but does not define the deductible specifically.