What Is A Deductible?
Insurance is full of jargon and we’ve been doing our best to help explain some of the commonly used acronyms, shot forms abbreviations and common terms that insurance professionals use regularly. We have written posts to date explaining everything from:
- What is an additional insured
- TIV Explained
- What is a statement of values for?
- What is all risk insurance?
- Many, many others which can be found here or by using the search bar above.
Why do deductibles exist?
Insurance companies use many tools and techniques to minimize their risk and deductibles are just one of many including:
- Amending policy wordings
- Adding exclusions
- Increasing rates
- Exiting certain classes of business
- Imposing stricter underwriting guidelines for eligibility
- Requiring specific risk management steps and/or services be taken
- Introducing warranties
- Including subjuctivities on quotes
- Increasing deductibles or self insured retentions
So…what is a deductible?
A deductible is ultimately a tool that insurers use that requires the insured to participate in the loss. For example if equipment was stolen from an insured’s location the insurance policy which would cover this loss would have a deductible which needs to be paid by the insured or would be used to reduce the amount the insured ultimately receives. More specifically if a $10,000 of property was stolen and the policy had a $2,500 deductible the insured would ultimately only receive $7,500. As you can see this helps reduce the amount the insurance company has to pay. Deductibles are used to discourage insured’s from submitting small claims as insurers are admittedly not well equipped and/or efficient in handling small claims. For example if $3,000 in property was stolen and the policy had a $2,500 deductible the insured would only receive $500 if they submitted a claim which may not be worth the time, effort, energy, impact on future insurance rates etc. to proceed with a formal claim and the insured would like just not report the claim and incur the full $3,000 loss.
For more information on what is a deductible or other business insurance questions contact an ALIGNED Insurance broker today 1-866-287-0448