What is a 'deductible' in the context of commercial insurance?

In commercial insurance, a 'deductible' refers to the amount that the policyholder must pay out of pocket before the insurer steps in to cover the remaining costs of a claim. This means that if a loss occurs, the policyholder will cover the initial costs up to the deductible limit, and the insurer will then pay for any eligible covered losses beyond that amount.

Choosing a deductible is significant because it affects both the insurance premiums and the risk-sharing between the policyholder and the insurer. A higher deductible typically leads to lower premiums, as the policyholder assumes more of the risk upfront.

Understanding this concept is crucial for policyholders to effectively manage their insurance costs and to ensure they have enough available funds to cover the deductible in case of a claim. This understanding also allows for better planning and budgeting in the event of an unexpected loss.