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

A deductible in an insurance policy serves as the amount that the insured is responsible for paying out of pocket before the insurance coverage kicks in. This means that when a claim is made, the insured must first pay the specified deductible amount, after which the insurer will cover the remaining costs up to the policy limits. This mechanism not only encourages policyholders to avoid filing small claims but also helps to lower the overall insurance premiums because it shares some of the financial risk between the insured and the insurer.

In contrast, while reducing the premium (as mentioned in another option) can occur as a result of choosing a higher deductible, it is not the primary purpose of a deductible itself. Similarly, capping an insurer's liability is related to policy limits rather than the function of a deductible. Providing additional coverage protection is not the role of a deductible either; instead, deductibles operate to determine how much of a loss is borne by the insured. Thus, the intended purpose of a deductible is primarily about establishing the threshold amount that must be paid by the insured before the insurer will provide coverage.