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Deductibles, explained!

When it comes to Commercial Property Insurance, there are so many facets that encompass this specialty insurance that it can be hard to keep track. In that same vein, there are also many deductible types that make up Commercial Property Insurance as a whole.  Most are pretty straight forward, however, some need a little more explanation.  Today’s article will discuss the various types of deductibles in further detail to help shed light on a little-known area of commercial insurance.

First, what is a deductible? A property deductible is the part of a property claim that is paid by the client before payment is made by the insurance carrier.  The deductible is designed to do a couple of services. First, it helps to keep the cost of insurance low by saving the insurance company time and money from handling smaller claims. Second, it helps to keep the premium low by sharing part of the risk with the owner.  The following list is an overview of the various deductible types:

  1. Flat Deductible:  Set dollar amount that is predetermined. The insurance company will then play any claim above the deductible.
  2. Percentage Deductible:  This is commonly seen from 1 % to 5% of a property TIV (total insurance value) such as building, contents and business interruptions.  The insurance company pays the amount based on the percentage.
  3. AOP Deductible:  This is a deductible for what is referred to as “all other perils”. This does not include wind and hail, but typically includes the perils of fire, auto, bursting of pipes and several more perils.
  4. Wind & Hail Deductible: This is a separate deductible set only for the perils of wind and  hail.  This is a common deductible in high-risk storm areas.
  5. Named Storm Deductible:  This is a separate deductible for storms that have been named, such as tropical storms or hurricanes
  6. Aggregate Deductible: This is a deductible set as a maximum of all deductibles in a given policy period. 
  7.  Waiting Period Deductibles:  This deductible is based on time before an insurance company pays a claim. It may be set in a number of days instead of a dollar amount.
  8. Deductible Buy-Down Policies:  Some insurance carriers will offer a higher than normal deductible such as a $100,000 deductible or a 3-5 % deductible. A customer can buy a deductible buy-down policy that pays the difference between a normal, lower deductible and the higher deductible. 

Deductibles are an important aspect of any kind of insurance and we feel it’s important to know the meaning behind the terminology. At Ramey King, we enjoy educating our customers and would love the opportunity to help you become more knowledgeable about your own policy. Contact us today for more information!