Video Transcript Below
Do you know how much of a loss is your responsibility?
In this blog post, you will learn about the different kinds of deductibles that you would encounter on a commercial policy and how each one affects you.
A deductible is a type of self-insurance. It is defined as the portion of a loss that you, as the insured, are responsible for.
A deductible comes in different forms, so it is important to understand the kinds of deductibles associated with each of your policies.
- A Flat Deductible is a dollar amount that applies to each loss and is usually subtracted from the amount of the covered loss. In this case, you would receive a bill for the deductible amount after the settlement has been determined or the repairs have been made. Most commercial property policies include a flat deductible.
Example: Your policy includes a $1,500 deductible and a $150,000 limit. Your property incurs a $40,000 flood loss. You will pay the flat deductible of $1,500 and your insurer will pay the difference ($38,500).
- An Excess Deductible is the opposite of a Flat Deductible. With an Excess Deductible, you are responsible for the first dollars up to the deductible and then the insurance company jumps in to pay for the rest of amount of a covered loss, up to your limit.
Example: Your policy has earthquake coverage with a limit of $500,000. The deductible is 15% of the building limit. If the building sustains $250,000 in earthquake damage, the insurer will pay $175,000 ($250,000 - $75,000) and the policyholder will pay the $75,000 deductible.
- A Waiting Period Deductible is called into play for business interruption coverage and specifies the amount of time that must elapse before coverage begins (about 24 to 48 hrs).
- A Percentage Of The Loss deductible could also be in the form of a percentage of a covered loss.
Example: Your property is insured for $100,000 and your insurance policy has a 2% deductible. In the event of a $10,000 claim, you would pay $8,000.
In the event of a loss, you will be responsible for paying the deductible. It is critical that you understand exactly what your policy deductible is and that you are comfortable with paying that amount in the event of a claim. There are often deductible options available to you - know what they are.
It is in your best interest to review your policy at least once a year with your broker to ensure you understand what you are paying for and what you can expect in the event of a claim.
Do you have an insurance or risk management related question that you would like answered as part of our Frequently Asked Questions Series? Leave your questions in the comment box below.