What is the primary purpose of a deductible in an insurance policy?

The primary purpose of a deductible in an insurance policy is to eliminate small claims. Deductibles are designed as a cost-sharing mechanism between the insured and the insurance company. When an insured party experiences a loss, they are required to pay a certain amount, known as the deductible, before the insurer pays for any remaining covered losses. By having a deductible, policyholders are encouraged to absorb smaller claims themselves, which helps reduce the overall administrative costs for insurers and keeps premiums more manageable for everyone.

Implementing a deductible often helps prevent an influx of minor claims that can burden the claims process and lead to higher administrative and processing costs for insurance companies. Additionally, deductibles can help maintain the overall integrity of the insurance pool by ensuring that policyholders are engaged in managing their risks and not leaning too heavily on their insurance for every minor incident.

While there may be other implications of deductibles, such as their effect on premium amounts and the claims process, their central role is indeed to eliminate smaller claims.