What is the amount the insured must pay before insurance coverage kicks in?

The amount the insured must pay before insurance coverage begins is referred to as the deductible. This is a common feature in insurance policies where the insured agrees to pay a specified amount out-of-pocket for a loss before the insurance company pays the remaining costs.

The deductible serves several purposes; it encourages responsible behavior by making the insured partially responsible for claims and helps keep insurance premiums lower since the insurer does not have to pay out on smaller claims. For instance, if a policy has a $1,000 deductible, the insured would need to pay that amount in the event of a claim, with the insurer covering the costs above that threshold.

Other options provide distinct meanings. Premium refers to the periodic payment made to maintain the policy, excess typically refers to additional amounts payable after the deductible has been met or could indicate additional coverage above a specified limit, and retained earnings relates more to corporate finance rather than individual insurance policies. Understanding these terms is crucial for navigating insurance contracts and financial responsibilities related to claims.