What is the purpose of a deductible in an insurance policy?

The purpose of a deductible in an insurance policy is that it represents the amount the insured must pay out of pocket before the insurance company begins to cover the remaining costs of a claim. This structure is designed to share the financial risk between the insurance company and the insured.

By having a deductible, policyholders are encouraged to be more responsible with their coverage, as they are directly affected by the costs of their claims. Deductibles help to keep insurance premiums lower, as the insurer is not required to cover small losses that could be paid by the insured themselves. This mechanism is especially prevalent in auto and health insurance policies, where a deductible is a common feature before benefits kick in.

The other choices describe different concepts related to insurance but do not accurately define the role of a deductible. For example, increasing premiums is generally a result of higher risks or claims rather than a purpose of a deductible. Similarly, funding a pool for all insured claims or covering administrative costs pertains to broader aspects of insurance risk management and operational costs rather than the specific function of a deductible.