The Basics of Insurance Deductibles

Insurance Deductibles

The deductible is the portion of a covered claim that is the policyholder’s responsibility to pay and are listed on your Declaration page as a dollar amount or a percentage.  Most types of policies, both for personal lines and commercial policies will have a deductible that applies to certain coverages, like Property coverage, Comprehensive and Collision for Auto, and health plans. Some Commercial Liability, Errors and Omission, and Excess Liability policies will include either a deductible or a Self-Insured Retention.

How Deductibles Work

Your insurance company will pay for losses that are over your deductible.  The higher the deductible, the lower your premium will be. Higher deductibles mean that a policyholder will file fewer small claims, as the insurance company will only pay the loss amount above the deductible.  To encourage higher deductibles, insurance companies will offer lower premiums because it will keep claim frequency and claim amounts lower. 

If you have a $1,000 deductible on your policy and a covered loss occurs that is $20,000 in damage, the insurance company would pay out $19,000 for the loss.  Deductibles generally apply each time you have a claim. Health insurance deductibles apply yearly.  Some coverages have specific deductible guidelines and rules, such as Hurricane, Flood, and Earthquake insurance. 

Self-Insured Retention

While often used interchangeably, there are significant differences between a Self-Insured Retention and a Deductible.  

When you have a deductible, that amount diminishes your available limit of insurance. The carrier is responsible for the claim, less the deductible. If your property limit is $50,000, and you have a $1,000 deductible, the maximum your policy will pay is $49,000. 

For a Self-Insured Retention, the limit of coverage is not reduced.  When there is a Self-Insured Retention on the policy, that limit is what the insured will be responsible for.  If the Self-Insured Retention is $10,000, any claim that falls under this amount is payable by the insured. If there is a loss of $100,000, and the limit on the policy is $100,000, then the full $100,000 is available.  The insured will pay for that first $10,000 before the carrier will respond to the loss. Your retention amount will not reduce your policy limits like with a deductible.