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
• Other

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.

Understanding Deductibles: A Deep Dive into Aggregate Deductibles

When it comes to insurance, one of the most common questions is, “What is a deductible?” In simple terms, a deductible is the amount a policyholder must pay out-of-pocket before their insurance coverage kicks in. However, not all deductibles are created equal. One particular type of deductible that stands out is the aggregate deductible.

An aggregate deductible sets a cap on the maximum amount a policyholder, such as a policyholder, will have to pay, regardless of the number of claims they report. This feature of aggregate deductibles offers several benefits to insured’s.

Firstly, an aggregate deductible allows insureds to assess their financial risk with respect to their deductible obligations at the time the policy is purchased. This means they can have a clear understanding of the maximum amount they would need to pay in the event of multiple claims and/or future claims. This clarity can provide peace of mind and allow for more informed decision-making when choosing a policy, setting budgets etc.

Secondly, an aggregate deductible enables your clients to budget their insurance expenses within any given policy term. By knowing the maximum deductible amount upfront, they can plan their finances accordingly and avoid unexpected costs. This can be particularly beneficial for businesses, as it allows for more accurate financial forecasting and budgeting.

Once the aggregate deductible amount is paid a policyholder will not be obligated to pay any additional deductible payments, even if new claims are brought against the policyholder within the same policy term. This means that after reaching the aggregate deductible limit, any further eligible claims within that policy term will be covered by the insurance, without requiring additional deductible payments from the policyholder.

In essence, an aggregate deductible provides a safety net for policyholders, protecting them from potentially high costs associated with multiple claims. It offers predictability, financial planning advantages, and enhanced protection.

To learn more about aggregate deductibles and how they compare to other types of deductibles speak with an ALIGNED Insurance Advocate today!  They would be happy to provide more detailed information and insights to help you understand the nuances of deductibles and make the best insurance decisions for your needs. Remember, understanding your deductible is a crucial part of making the most of your insurance coverage.

For more information on what is a deductible or other business insurance questions contact an ALIGNED Insurance broker today 1-866-287-0448