What do you understand by “Deductible” in Insurance? Why is it added to insurance?

In the context of insurance, the deductible is a decided amount that a policyholder has to pay from his pocket before the insurance company starts paying to the policyholder. In other words, we can say that an insurance company is liable to pay the claim amount only when it exceeds the deductible.

Reasons behind adding deductible in insurance:

• A deductible is one of the several types of clauses added to insurance. It is used by the insurance company as a threshold for policy payment, generally for health insurance and travel insurance.
• It is mainly added as a clause in health insurance plans to prevent frauds or scams and ensures that the customers raise only genuine claims.
• Suppose you have a health insurance plan of 50000 rupees, and the deductible is 10000 rupees. You have to pay 10000 rupees first in the hospital. The remaining amount of 40000 will be paid by the insurance company directly to the hospital only when the deductible amount is paid.