Final answer:
A deductible is the amount paid by an insured individual before the insurance company covers the rest of a claim. It is a form of cost-sharing and can be a fixed amount, a percentage of the claim, or a specified time period.
Step-by-step explanation:
The correct answer to the student's question is 'deductible'. A deductible is an amount of any loss that is to be paid by the insured and can be a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid. In the context of insurance, it represents a form of cost-sharing where the policyholder is responsible for paying a certain amount of the claim before the insurance coverage kicks in. This is distinct from coinsurance, where the policyholder and the insurance company share the costs after the deductible is met, and from a copayment, which is a fixed amount paid for a covered service.
Insurance serves as a method for individuals to protect themselves from financial loss, where regular payments, or premiums, are made to an insurance company. The insurance entity then provides compensation to policyholders who suffer financial damage from events covered by their policy, such as accidents or illnesses. It is important to understand these terms when selecting an insurance policy to be aware of possible out-of-pocket expenses.