A policy may stipulate that losses are to be reimbursed only in excess of a stated threshold
amount, called a deductible. For example, consider insurance that covers a loss resulting from an
accident but includes a 500 deductible. If the loss is less than 500 the insurer will not pay
anything to the policyholder. On the other hand, if the loss is more than 500, the insurer will pay
for the loss in excess of the deductible. In other words, if the loss is 2000, the insurer will pay
1500. Reasons for deductibles include the following: