In the context of Homeowners Insurance, what does “deductible” refer to?

In the context of Homeowners Insurance, a “deductible” specifically refers to the amount that the policyholder must pay out of pocket before the insurance coverage takes effect on a claim. This means that when a covered loss occurs, the homeowner will first pay the deductible amount, and the insurance company will then cover the remaining eligible costs up to the policy limits.

For example, if a homeowner has a deductible of $1,000 and they file a claim for $5,000 in damages, they will pay the first $1,000 themselves, and the insurer will cover the remaining $4,000. This mechanism helps to share the risk between the insurance provider and the policyholder, as it requires the homeowner to take on some personal financial responsibility in the event of a loss. Understanding deductibles is crucial for policyholders as it directly impacts their overall out-of-pocket expenses during a claim.