Deductible

A deductible is your share of an insurance claim, which you must pay before your insurer provides financial coverage.

It’s also an important part of how your premium is calculated and what you can expect to pay if something goes wrong.

For small business owners, choosing the right deductible can affect your cash flow, premiums, and claim decisions.

A deductible also influences whether a small claim is worth filing.

If the cost to repair or replace an item is close to your deductible, you might decide to pay out of pocket instead of filing a claim. This can help:

• Avoid potential premium increases
• Maintain a clean claims history
• Reduce administrative hassle

For example, say a cleaning business with a $1,500 deductible damaged a $1,700 floor buffer. Filing a claim may not be worthwhile because the deductible nearly equals the cost of the loss.

Most forms of small business insurance have a deductible, for example:

• General liability
• Business owner’s policy (BOP)
• Commercial property
• Commercial auto
• Cyber insurance
• Professional liability
• Errors and omissions

You can choose to set your deductible as low as zero for some policies such as general liability insurance, but you'll pay a higher premium as a result. About two-thirds of people who purchase general liability insurance through Insureon choose to pay a deductible and the average amount for this policy is $500.

When you suffer a loss, such as damage to your business vehicle from an accident, an insurance adjuster will investigate the incident. Part of that process involves determining how much it will cost to fix the damaged car.

Here’s where your deductible enters the picture. If the adjuster’s damage estimate was $5,000 and your commercial auto insurance policy has a $500 deductible, then you will pay the first $500 of the claim and your insurer will pay the balance of $4,500.

Setting your deductible amount is often a joint decision between you and your insurer. With some insurance types, the company will set a minimum deductible and then give you optional higher deductibles from which to choose.

When you choose a higher deductible, your total premium will typically be lower. However, you will pay more out of pocket before your insurance coverage is activated.

For example, with errors and omissions insurance, the minimum deductible might be $500. However, to save money, you might agree to select a $1,000, $2,000, $3,000, or up to a $10,000 deductible. The higher you go, the greater the risk you’ll assume personally—and the less you’ll pay for your policy.

Some policies refer to a retention or self-insured retention (SIR) instead of a deductible, especially:

• Professional liability / E&O
• Cyber liability
• Some general liability policies

Although similar, they're not identical. The main distinction between the two is how quickly insurance begins to help—and how much work you do during the claims process.

Insureon helps small business owners compare commercial insurance quotes with one easy online application. Start an application today to protect your business against legal liabilities.