A deductible is the amount of money that a policyholder must pay out of pocket before their insurance coverage kicks in. For example, if your health insurance has a $1,000 deductible, you will need to pay the first $1,000 of medical expenses before your insurance company starts covering costs. Deductibles are common in health, auto, and homeowner’s insurance policies.

Higher deductibles often result in lower premium costs, as the policyholder agrees to take on more of the financial risk. However, it’s important to choose a deductible that you can afford to pay in the event of a claim. Some policies also have different types of deductibles, such as per-claim deductibles or annual deductibles, which apply to multiple claims over the course of a policy year.