What is the purpose of a deductible in insurance?

A deductible in insurance is specifically designed to deter small claims. The idea is that by requiring the policyholder to pay a certain amount out of pocket before the insurance coverage kicks in, it encourages them to think more carefully about whether a particular loss or damage is significant enough to warrant filing a claim. This helps insurance companies manage their administrative costs and resources, as processing numerous small claims can be inefficient and costly.

When policyholders know they are responsible for a portion of any claim, they are less likely to submit claims for minor incidents, which helps keep overall premiums lower for everyone by reducing the number of claims filed with the insurer. This mechanism also reinforces the concept of shared risk between the insurer and the insured.

In contrast, increasing coverage amounts, streamlining the claims process, or enhancing policyholder investments do not accurately describe the central function of a deductible in an insurance policy. Each of these options addresses different aspects of insurance but does not reflect the primary role of a deductible, which is to manage and mitigate the frequency of small claims.