Final answer:
The term that refers to the responsibility of the insured to pay a portion of a loss before the insurer covers the rest is called a deductible. Copayments and coinsurance are other methods where the insured shares in the cost. These cost-sharing arrangements encourage policyholders to avoid unnecessary claims and help to reduce moral hazard.
Step-by-step explanation:
In insurance, the term that describes sharing in the financial burden by paying a small fraction of the loss before the insurance company pays is known as a deductible. This is an amount that the policyholder pays out of pocket before the insurance coverage kicks in. For instance, if auto insurance has a $500 deductible, the policyholder would need to cover the first $500 of any claim before the insurance pays the remainder. Health insurance often utilizes a copayment, where the policyholder pays a fixed amount, such as $20 per doctor's visit. Another form of cost sharing is coinsurance, where the policyholder and insurance company split the cost at a certain percentage, such as 80/20, with the insurance paying 80% and the policyholder 20% of the covered costs. These methods, including deductibles, copayments, and coinsurance, are designed to reduce moral hazard and ensure that the insured has a financial stake in the cost of their claims.