What is the primary function of a deductible in insurance claims?

The primary function of a deductible in insurance claims is to manage risk and costs for both the insurer and policyholder. A deductible is the amount of money that the insured must pay out-of-pocket before the insurance company kicks in to cover the remaining costs of a claim.

When a deductible is set in a policy, it serves several purposes. It encourages policyholders to think twice before filing small claims, as they would need to pay the deductible amount first, potentially lowering the frequency of smaller claims. This aspect helps stabilize insurance premiums overall, resulting in lower costs for all policyholders since insurers are managing fewer claims.

Additionally, the deductible helps align the interests of the insurer and the insured. By sharing the burden of claims costs, it incentivizes policyholders to take greater care to reduce the likelihood of loss or damage. Overall, while a deductible might influence the amount that a policyholder receives in a claim, its core function is centered around risk management rather than specifically differentiating between values or simplifying processes.