What is the amount the policyholder pays out-of-pocket before insurance coverage kicks in?

• A. Premium
• B. Deductible
• C. Coinsurance
• D. Out-of-Pocket Maximum

Answer: (B)

The amount the policyholder pays out-of-pocket before insurance coverage starts is known as the deductible. This is a specific dollar amount that a policyholder must pay for covered services or claims before the insurer begins to cover any expenses.

In health insurance and many property insurance policies, the deductible plays a crucial role in determining how claims are handled. For example, if a policyholder has a $1,000 deductible, they must pay this amount toward their claims before the insurance company will pay for any further costs related to the claim.

This mechanism encourages policyholders to be mindful of the claims they submit and ultimately helps keep premiums lower because it reduces the insurer's overall risk. By requiring a deductible, insurers can limit small or frequent claims that could increase costs for everyone.

Other terms mentioned, though related to out-of-pocket costs, refer to different aspects of insurance. The premium is the cost of purchasing the policy itself, while coinsurance is the percentage of costs that a policyholder must pay after reaching the deductible. The out-of-pocket maximum is the ceiling amount that a policyholder will pay for covered services in a year, beyond which the insurance covers 100% of the costs.