A property insurance deductible can be defined as the amount of money that the insurer will deduct from each covered loss before paying out a claim.  The insured is expected to pay this deductible amount out-of-pocket. At first glance, opting for a low property insurance deductible might seem like the obvious choice. After all, handing over fewer dollars after a property loss seems like a no-brainer. 

Yet, when you dive a little deeper into the details of the policy and how they relate to your business, you may think differently. 

Not only can the property insurance deductible work in your favor (saving you in the long run), but it can help bolster your business as well. For this reason, it’s vital to consider the following 3 things before you settle on a final number. Ready? Let’s go!

What’s the Point of a Property Insurance Deductible?

Naturally, the question on every business owner’s mind is whether to aim for a high or a low property insurance deductible. But this choice isn’t simply a roll of the dice. Rather, before signing in black ink, it’s important to know why deductibles exist in the first place. 

To start off, a property insurance deductible is a multitasker of sorts. Its most attractive purpose is keeping insurance coverage affordable. Without deductibles, insurance carriers’ obligation to cover every loss, no matter how small, would burn a mega hole in your insurer’s pocket—which, in turn, would skyrocket the overall cost of insurance. 

Additionally, because of the affordability factor, deductibles put the reins back into the insured’s hands. We all enjoy feeling empowered sometimes, so choosing how to use your premium dollars can feel like a huge bonus. 

Lastly, deductibles play the part of a seasoned coach, encouraging policyholders to exercise solid risk management. The best coaches balance life lessons with independence like a pro. That’s exactly what a property insurance deductible does. As the policyholder, you’ll be inspired to protect your property a bit more knowing that you’re obligated to pay for a part of the loss via a deductible. 

3 Things to Consider Before You Choose

If knowing the purpose of a property insurance deductible is simply the appetizer, then the main course is actually considering how that deductible impacts your business.

1. When to Choose a Low Deductible

Insurance policies work a lot like those old fashioned balancing scales. Deductibles and premiums rise and fall, attempting to gravitate toward the right coverage for your business. Yet, it’s not uncommon for some business owners to look right past the deductible to focus solely on the premium (or vice versa). 

As you may have guessed, this kind of thinking is problematic. Mostly, because your deductible and your premium work in tandem to help deliver exactly what you need. To forget or disregard one would throw the scales off balance. 

For example, low deductibles can be fantastic when an unexpected claim comes in. A low deductible won’t typically upset your budget, even if you’re running a tight ship. Plus, you’ll have lower out-of-pocket costs.

The flip side to all of the above benefits is that your premium will be higher. Some business owners don’t raise an eyebrow to a higher premium. Even a steady chunk of cash is a far more reliable expense than, say, an unexpected claim.

To determine if a low deductible is right for you, it’s necessary to take a good look at your cash flow and what fits your budget.

2. When to Choose a High Deductible

As mentioned before, some business owners are tempted to only consider one element of their property insurance. Granted, it’s more common for a lower premium to sparkle and shine than a low deductible.

Going back to the old fashioned balancing scales, though, a high deductible means paying a lower premium. On the one hand, this can feel pretty good when you make your premium payment. It sort of spurs you forward, allowing for a bit more financial freedom on a regular basis. Which, could be a game changer for your business. 

On the other hand, a high deductible can sucker punch you by means of an unexpected claim. Unsurprisingly, this is exactly the gamble you make when you opt for a high deductible. And sometimes, it’s the perfect move for you. 

For example, if you can comfortably afford to dish out a high deductible and still accommodate other expenses, you’re golden. The reason you are being “rewarded” with a lower premium is that you can assume more risk by taking on the high deductible. 

Essentially, you’re paying for a higher portion of the loss, and insurance companies really appreciate this type of responsibility.

3. When High Retentions Are a Good Thing

Remember the seasoned coach referred to earlier? High deductibles/retentions fall right in line with this coaching comparison as they can also provide you with plenty of life lessons on being responsible.

High retentions are simple enough and fairly similar to deductibles, except that retentions are paid first and not included in the total policy limit. Basically, you commit to paying a certain portion of the property loss before insurance kicks in. Only after that amount is met, the insurance company will begin to make payments toward the loss up to the policy limit. 

But, high retentions also have the potential to be a good thing. Policyholders are discouraged from over-reporting claims which lower costs for everyone in the market. And back to the coaching, high retentions are also thought to promote personal responsibility and risk mitigation. For this reason, it’s often referred to as self-insurance. 

Having a high retention might be your cup of tea if you’re more than willing and able to “kill” the fattened piggy bank. Committing yourself to dishing out cash for an unexpected loss takes some serious responsibility and loads of forethought; however, you can rest easy knowing that insurance is still there for the more catastrophic losses. If this sounds like you and your business, a high retention might be the way to go.

Click here to apply for a ReShield insurance quote on your property and guarantee the right balance between premium and deductible.