If your business gets damaged, you’ll want to repair it. If you have a business owners policy, namely property insurance, you’ll probably have help. However, just because you have coverage, don’t expect your plan to pay 100 percent of the bill. You’ll probably have to pay a
deductible before your plan kicks in. What’s this financial requirement?
A deductible is a cost burden. Nevertheless, it can also prove a cost benefit when it comes to your insurance premiums. Learn how to leverage yours to your advantage.
What’s a Deductible?
Your deductible is your responsibility for the repair costs of damaged property. When you enroll in insurance, you’ll agree to pay the deductible as something of a down payment for repairs. Your insurance policy will then agree to cover the rest of the claim costs, up to the limits of the policy.
Let’s say your building sustains damage from a fire, totaling $10,000. On your property insurance, you have a $1,000 deductible. You will have to pay the $1,000 deductible towards the repairs. Your policy will then cover the remaining $9,000 of the claim ($10,000 - $1,000 = $9,000).
Keep in mind, the deductible is not the same thing as the policy’s upper limit. So, if your home sustains damage above the limits of your coverage, you might still face other costs.
What are the Types of Deductibles?
Most property insurance policies vary. The deductibles in these policies might vary also.
- Flat deductibles are specific amounts. The example above is of a flat deductible.
- Percentage deductibles might come into play following catastrophic losses. You’ll agree to pay a percentage of the value of the policy’s limit. For example, if you have $1 million in coverage, you might agree to pay 10 percent of that ($100,000) for the claim. Even if you don’t have $1 million in damage, you’ll still pay the $100,000.
Deductibles might apply to other parts of your coverage, like possessions or business income insurance. Ask your agent about the specifications within these elements.
Why do Deductibles Help You?
Deductibles can actually go a long way towards helping you afford your insurance. Indeed, many insurers base premium costs in part on the value of your deductible.
If you choose a higher deductible, that reduces the amount insurance might have to pay for a claim. Therefore, you shift some of the risk away from the insurance company. That lower risk could lead the insurer to award you with a lower rate.
Don’t hesitate to negotiate your deductible with your insurer. At the end of the day, you might find it an easy way to manage your policy costs.
Also Read: How to Think About Business Interruption Insurance