Final answer:
The amount the insured is willing to pay before insurance coverage begins is known as the deductible. Deductibles, along with copayments and coinsurance, are methods to reduce moral hazard by making insured individuals share in the cost of their claims.
Step-by-step explanation:
The amount of loss the insured is willing to absorb without insurance protection is known as the deductible. This is the maximum amount that the policyholder must pay out-of-pocket before the insurance company begins to pay the remainder of the expenses.
The presence of a deductible, along with copayments and coinsurance, is a common feature in many insurance policies that serves to reduce moral hazard by having the insured party bear a portion of the costs. For instance, if an auto insurance policy has a $500 deductible, the policyholder would be responsible for covering losses up to that amount before the insurer's coverage takes effect. Similarly, health insurance often requires a copayment, like a $20 fee for each doctor visit, with the insurer covering the rest.