What it means
On property policies, the deductible is usually subtracted from the claim payment. If a covered fire causes 50,000 of damage and the deductible is 5,000, the insurer pays 45,000, subject to the policy terms.
On liability policies with a deductible, the insurer generally handles and pays the claim, then bills the business for the deductible amount. Deductibles may apply per claim or per occurrence, and some policies include an aggregate deductible.
Higher deductibles usually lower premium. Contracts sometimes limit deductibles, especially on liability policies, and lenders often set maximum deductibles on property coverage.
An example
Marigold Catering’s commercial property policy has a 2,500 deductible. A small kitchen fire causes 12,000 of covered damage to equipment. The insurer pays 9,500 after applying the deductible, subject to the policy terms.
Names in this example are fictional.
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Should a small business choose a higher deductible?
It can make sense when the business has cash to absorb smaller losses and wants a lower premium. The savings should be weighed against how often claims occur and whether contracts or lenders cap deductibles. Compare quotes at two or three deductible levels to see whether the premium difference justifies the extra risk.
Do liability policies have deductibles?
Many do not, but some do, particularly for higher risk classes or larger accounts. When they do, the insurer usually pays the claim and then bills the business for the deductible. Some contracts require disclosure of liability deductibles, so check the policy declarations before confirming a contract’s insurance section.
General information only. It is not legal or insurance advice. Only issued policy documents and endorsements describe actual coverage.