Deductible

What Is a Deductible?

If a covered loss costs $8,000 and your policy has a $2,500 deductible, you pay the first $2,500 and your insurer pays the remaining $5,500. The deductible applies per claim (or, on some policies, per occurrence or per year, depending on the coverage), not as a one-time annual charge. Small losses under the deductible amount are paid entirely out of pocket, which is why many businesses don't bother filing a claim for a $600 fender-bender on a $2,500-deductible auto policy.

How Deductibles Affect Your Premium

Raising your deductible almost always lowers your premium, because you're absorbing more of the small, routine losses yourself and the insurer's expected payout drops. Lowering your deductible raises your premium for the same reason in reverse. The right number depends on how much unplanned cash your business could actually absorb in a bad month, not just which quote looks cheapest today.

Deductibles Aren't Always a Flat Dollar Amount

Property policies in catastrophe-prone areas often apply a percentage-based deductible instead of a flat number — commonly 1% to 5% of the insured value — specifically for named-storm, wind, or hail losses. On a building insured for $2,000,000, a 2% wind/hail deductible means the first $40,000 of a qualifying loss comes out of pocket, which surprises a lot of owners who are used to thinking in flat dollar figures.

Why This Matters

The deductible you choose directly shapes both your premium and your real exposure the day something actually goes wrong. Too low, and you're overpaying in premium for protection against losses you could easily absorb yourself. Too high, and a routine claim can create a cash-flow problem at the worst possible time. Getting this number right is a genuine underwriting conversation, not a box to check.