What does the term 'deductible' refer to in insurance?

The term 'deductible' in insurance refers to the amount that the insured is required to pay out of pocket before the insurance coverage kicks in for a claim. Essentially, before the insurance company will cover the costs associated with a loss or damage, the policyholder must first pay this specified amount. This mechanism serves several purposes, including reducing the number of minor claims and encouraging the insured to take care when managing risks.

In the context of the other options, the total amount of the insurance policy indicates the maximum liability of the insurer but does not define the deductible. The amount an insurer pays before any losses occur is more related to how insurance payouts work rather than the deductible itself. Lastly, the total cost of claims within a year refers to the aggregate of all claims filed but is not relevant to the concept of a deductible, which is specifically about the individual payment made by the insured prior to the insurer's contribution.