Deductible Definition

The "Legal-Ease" Glossary
Deductible

This is the sum of money you, the insured, must pay out of pocket before your insurance benefits kick in.

Depending on the policy, a deductible can be applied by year or by incident. Essentially, it’s the amount of money you agree to pay before collecting from your insurance company. The idea behind insurance deductibles is to discourage insureds from making a ton of small claims on their policies.

Let’s take a look at an illustration:

  • Your small business Property Insurance policy has a $500 deductible.
  • After a small office fire, you suffer $1,500 worth of property damage.
  • You make a claim on your insurance policy, and it’s accepted.
  • Your insurance company writes you a check for $1,000 after you pay the $500 deductible.

If you only suffered $200 worth of covered property damage, it wouldn’t be financially prudent to make a claim on your policy because your deductible is more than the cost of the damage.

When you select an insurance policy, you usually have a couple options when it comes to your deductible amount. Usually, the higher the deductible, the lower your monthly or yearly premiums are likely to be.

However, small-business owners should be careful to choose a deductible they can actually afford. Accidents and damages are always unplanned, which means you should take care to choose a deductible amount that you readily have on hand. In the event of a claim, the insurance provider won't pay benefits until the deductible has been met. And if your deductible is so extravagant that your business can’t possibly come up with it in a reasonable timeframe, it’s probably too high.

Remember: the whole point of having insurance is to have access to your benefits when those out-of-the-park expenses come up. Your deductible shouldn’t bar you from collecting on your coverage.

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