Out of Pocket Expenses Law and Legal Definition

Out-of-pocket expenses are funds paid directly for necessary items not otherwise covered by a contract. They may be paid, for example, by a contractor, trustee, executor, administrator or any person responsible. Such expenses may be recoverable in a lawsuit for breach of contract; allowable for reimbursement by trustees, executors or administrators; or deductible by a landlord from a tenant's security deposit for damages beyond normal wear and tear.

In tax law, out-of-pocket expenses are often tax deductible, such as having to purchase a new uniform for a job or a charitable function. In the context of health insurance, the amount of the coinsurance, which is the patient's responsibility, is called the out-of-pocket expense (OOP) expense. An annual cap often applies to the OOP so that once the maximum amount is reached, the insurer covers remaining services 100%.