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Deductible

A deductible is the amount of money you have to pay out of your own pocket before your insurance company starts covering costs. It's a set amount specified in your insurance policy.

What is a Deductible in Insurance?

A deductible in insurance is essentially a threshold you must reach before your insurer begins to pay for your claims. For instance, if your car insurance has a $500 deductible and you get into an accident causing $2,000 worth of damage, you will pay the first $500, and your insurer will cover the remaining $1,500. Deductibles are common in various types of insurance, including health, vehicle, and homeowners’ policies.

Key Components of a Deductible

Amount: The specific dollar amount you must pay before your insurance kicks in.

Application: Deductibles can be applied per claim (as in auto insurance) or annually (as in health insurance).

Impact on Premiums: Higher deductibles usually mean lower monthly premiums, while lower deductibles result in higher premiums.

Types of Deductible

Fixed-Dollar Deductible

A set amount you pay out of pocket per claim.

Percentage Deductible

A percentage of the insured or claimed amount, often used in natural disaster or earthquake cover.

Annual Deductible

Common in health insurance, it’s the total amount you pay in a year before insurance covers costs.

Per-Claim Deductible

Applied to each individual claim, typical in auto insurance.

Exclusions and Limitations

When it comes to business insurance, understanding exclusions and limitations related to deductibles is crucial for effective risk management. Here are some key points to consider:

  1. Policy-Specific Exclusions: Certain risks might be excluded from coverage entirely, meaning they do not count towards your deductible. For example, many policies exclude damages caused by natural disasters such as floods or earthquakes unless you have specific endorsements.

  2. Coverage-Specific Deductibles: Different types of coverage within a business insurance policy can have separate deductibles. For instance, property insurance might have one deductible, while liability insurance has another. This means you could pay multiple deductibles if a single incident triggers claims under different coverages.

  3. Sublimits and Caps: Some policies include sublimits for specific types of claims, which can limit the amount covered after the deductible is paid. For example, there might be a sublimit on theft coverage that caps the payout, regardless of the deductible amou