Determining Business Insurance Deductibles
Understanding your business insurance deductibles can be tricky, but it’s a valuable part of managing your insurance costs, and having a solid knowledge about why those costs are what they are. Your insurance policy will pay a covered loss in the event that there is an occurrence that results in a type of damage that your policy addresses, minus any deductible written into the policy, which it will not pay.
A business insurance deductible is a fixed amount or a percentage of an insurance claim which is to be paid by the insured. Although deductible amounts can be voluntary–with the insured choosing to pay a higher deductible to help reduce premiums–there is generally a standard deductible.
Insurance companies impose these standard deductions to avoid numerous small claims. One example: let’s say you have a claim and your damage is estimated at $7,500.00. You have a deductible of $800.00 on your policy. The check for the claim you receive from your insurance company would subtract the deductible, in this case, $800.00 and you would receive a check for $6,700.00 to settle the claim.
Generally speaking, the higher the deductible, the lower the premium is on the policy and vice versa.
When deciding on a deductible, it pays to weigh the risk and the impact of a loss as well as the premium amount against your cash flow analysis. While it may make sense based on your monthly cash flow to pick the highest deductible and lowest premium, it may be exposing your business to a serious risk.
If your business’s budget would be crippled by producing the money to cover a high deductible in the event of a loss, then it’s probably too high of a risk. This is where the savvy small business owner works with their licensed insurance professional to get the best value and coverage for their business–and their financial state.
While deciding on the deductible, another aspect to review is how you will recoup your loss. A ‘cash value’ basis is a replacement of cost, minus depreciation. A replacement cost will repair or replace the insured property at its present cost without depreciation. Naturally, replacement cost will have a higher premium than cash value.
Nothing replaces a conversation with an insurance professional about the risks and benefits of high vs. low premiums. Call us today at 1-877-907-5267 to speak with one of our specialists about your company’s needs, and your business insurance premiums.
Risk management is an art, and our business is helping you protect your business.