Property Insurance Deductibles 101

When it comes to choosing an insurance policy, there are an awful lot of complicated terms and examples of ‘legalese’ that you will need to wade your way through. This can be very off-putting even for the most discerning business owners, and may lead to companies making rash decisions and ultimately investing in the wrong deal.

In this post then, we will take a look at how you can use the right property insurance deductibles in order to get the best overall deal on your policy.

What is a Deductible?

A deductible is a portion of a loss that’s borne by the policyholder. In other words, this is a small amount of the overall cost that you will pay yourself. If you have a $1,000 claim and you have a $100 deductible, then you will pay $100 and the insurance company will pay $900.

The purpose of the deductible is primarily to help keep insurance costs low. Small claims for instance can be quite expensive to process and in fact they can sometimes be more expensive than the entire amount paid out to the policy holder!

Therefore, if insurers were required to pay out for every single tiny claim, they would be forced to charge a lot more in total for their policies.

Deductibles also help policy holders in other ways. This is an example of ‘self-insurance’ and by increasing the deductible, a client can thereby lower the overall premium.

And on top of all this, a deductible can also serve as a useful deterrent or incentive. In other words, if you’re required to pay a small amount for your claims, then you may be more inclined to be more careful with your property! This isn’t necessarily an example of a company being condescending (though it may sound like it!). Rather, some policyholders actually appreciate this aspect and choose higher deductibles for that very reason!

Types of Deductible

The overall concept is probably fairly straightforward then, but it does come in a variety of different flavors.

One thing to keep in mind is that it can sometimes go by different names – such as ‘excess’ in other countries.

Other than that, there are also different types to keep in mind:

Flat Deductible

A flat deductible is included in the vast majority of commercial property insurance policies. This is a set dollar amount that will apply to each loss and that will be subtracted from the overall total.

This is the example that we saw earlier: if you were to pay $100 on a $1,000 claim for instance. At the same time though, if the total amount of damage came to $2,000 though, then amount that you would pay would not change: it would still be $100.

This number will often be presented alongside the ‘limit’. This is the total that the company will pay out.

Percentage Deductible

The percentage deductible on the other hand is a deductible that’s calculated as a percentage of the total overall damage.

So, if you had the same $1,000 damage and you had a 10% deductible, then you would still pay out the same $100 yourself and get the same $900 from the insurer.

On the other hand though, if your percentage was set at 15%, then you would pay $150 and the company would pay out $850.

It’s up to the policy holder in most cases to choose the type of policy that best suits them. Note that in some cases however, a policy might determine that your deductible vary based on the type of damage incurred however. For instance, you might be asked to pay a percentage deductible in the event of a hurricane or another type of natural disaster.

Waiting Periods Explained

Because nothing is simple in this life, companies often will not mention the deductible in the policy when dealing with businesses – or the word ‘excess’. Instead, you might see the phrase ‘waiting period’. So, what is this?

A waiting period is simply the amount of time that needs to elapse before the coverage begins. The typical waiting period for a business policy is 72 hours (which of course comes to three days). The income that you lose during this period is not going to be covered (even by income insurance) and that in itself will therefore act as a kind of excess, ultimately achieving the same results.

A waiting period will also often be included in Civil Authority Coverage. EK Insurance can help you with your property insurance needs.