What is the financial term used for the total costs a policyholder must pay out-of-pocket before insurance begins to assist with a claim?

The term that designates the total costs a policyholder must pay out-of-pocket before their insurance coverage starts to contribute to a claim is known as a deductible. A deductible is essentially a predetermined amount that the insured agrees to bear prior to the insurance company covering any remaining costs associated with a claim. It serves as a financial threshold that must be met before the policy kicks in, thereby influencing the policyholder's out-of-pocket expenses related to healthcare, auto repairs, or other covered incidents.

This mechanism not only protects the insurer by reducing the frequency of small claims but also encourages policyholders to be mindful of the costs associated with their care or coverage. Understanding the role of a deductible is crucial as it directly impacts the financial planning of individuals when considering their insurance options.