New York State Property and Casualty Licensing Practice Exam 2025 – Your All-in-One Guide to Success!

A deductible in an insurance policy is defined as the amount a policyholder must pay out of pocket before the insurance company will cover the remaining costs of a claim. This means that when a policyholder experiences a loss and submits a claim, they are responsible for paying the deductible amount first. For example, if a car repair costs $1,000 and the deductible is $500, the policyholder would need to pay the initial $500, and then the insurance would cover the remaining $500.

Deductibles serve several purposes, including reducing the number of small claims submitted to insurance companies, which can help keep overall insurance premiums lower. By requiring policyholders to share in the cost of a loss, it also encourages responsible behavior and risk management.

Understanding this concept is crucial for individuals when choosing an insurance policy, as higher deductibles can lead to lower premium costs, while lower deductibles provide more immediate financial support in the event of a loss.