What is a deductible and how does it work in insurance field?

A deductible is the amount that the policyholder must shoulder before the insurance company pays out a claim. Depending on the type of policy, deductibles can apply per policy or per claim.

Insurers typically impose deductibles to avoid having to reimburse a barrage of small and low-value claims. Policies with high deductibles often have lower premiums. Some industry insiders also suggest policyholders choose higher deductibles to save on insurance costs but cautioned that the amount must be set at a level that they can afford to pay.