Your commercial 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 carrier.
Deductible amounts can be voluntary, meaning, a business owner can choose a higher deductible to help reduce premiums, but there is generally a standard deductible. Insurance carriers impose these standard deductions to avoid numerous small claims.
The claim process for the carrier is expensive, running through layers of employee and departments before a claim is ever paid.
An example of how a deductible works 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. The additional $800.00 will be the responsibility of the business.
Normally, 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 commercial insurance agent or broker to get the best value and coverage for their business.
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.