Insurance policies typically stipulate a deductible amount which the insured must shoulder; this is to address the problem of

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The purpose of a deductible is to address the problem of moral hazard, which refers to the tendency of insured individuals to take more risks or engage in more reckless behavior because they know they have insurance coverage. By imposing a deductible, the insured person has to bear some of the cost of any damages or losses, which may discourage them from engaging in risky behavior. Adverse selection refers to the tendency of higher-risk individuals to be more likely to purchase insurance, while externalities and public goods refer to other types of market failures.

Insurance Policies Typically Stipulate a Deductible Amount Which the Insured