A deductible is the amount of money you pay out of pocket before your insurance coverage kicks in.
What is an insurance deductible?
A deductible is your share of an insurance claim, which you must pay before your insurer provides financial coverage. Deductibles are a form of risk-sharing between insurers and their customers. They help to keep insurance costs affordable for small business owners while minimizing the number of small claims insurers must handle.
Do deductibles in insurance apply to all types of policies?
Most forms of small business insurance have a deductible, for example:
- General liability
- Business owner’s policy (BOP)
- Commercial property
- Commercial auto
- Cyber liability
- 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 median (most common) deductible amount for this policy is $500.
How does an insurance deductible work?
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.
Who determines your deductible amount?
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.
Learn more about how to find savings with small business insurance.
Can one insurance policy have multiple deductible types?
Yes. For example, commercial property insurance might use one of three different forms of deductibles:
- Flat deductible: A fixed dollar amount applied to each loss
- Percentage deductible: A percentage applied to a property’s total value, often in cases of catastrophe damage
- Waiting-period deductible: A certain period of time a business must be shut down before qualifying for payments under its business interruption endorsement
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