In property insurance, what is a deductible?

A deductible in property insurance is defined as the amount the insured must pay out-of-pocket before the insurance coverage becomes applicable to a claim. This means when a policyholder makes a claim, the deductible is subtracted from the total loss amount, and the insurance company will only cover the remaining costs. For example, if there is a $1,000 loss and a $250 deductible, the insurer would pay $750 and the insured would be responsible for covering the initial $250.

This mechanism serves several purposes: it prevents minor claims from being processed, encourages policyholders to take precautions against losses, and keeps premiums more affordable by sharing some of the risk between the insurer and the insured. Understanding how deductibles work is crucial for policyholders as it affects their potential out-of-pocket costs when facing property damage or loss.