What should I have as a business insurance deductible?
Generally, the higher the deductible, the lower the premium is on the policy and vice versa. In deciding on a deductible, it pays to weigh the risk and the impact of a loss as well as the premium in your cash flow analysis. While it may make sense for 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 would be crippled coming up with the money to cover a high deductible in the event of a loss, then it’s probably too high a deductible. This is where the savvy small business owner works with their licensed insurance professional to get the best value and coverage for their business.
Let’s look more closely at policies and deductibles. Your insurance policy will pay a covered loss, minus any deductible written into the policy that it will not pay. A deductible is a fixed amount or a percentage of an insurance claim which is to be paid by the insured.
Deductible amounts can be voluntary, meaning, an insured can choose a higher deductible to help reduce premiums, but there is generally a standard deductible. Insurance companies impose these standard deductions to avoid numerous small claims. An example would be that your damage is estimated at $7500.00 and you have a deductible of $800.00 on this policy.
The check for claim you receive from your insurance company would subtract the deductible, in this case, $800.00 and you would receive a check for $6700.00 to settle the claim.
While deciding on the deductible, another aspect to review is how you as the insured will recoup your loss. A ‘cash value’ basis is a replacement of cost less any 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. Make sure you understand how your claim will be paid. How have costs and materials increased?
Your commercial insurance broker can work through various scenarios with you to make sure you understand how a loss would be compensated.