Essentially, the deductible is essentially the financial investment you have to put in for any claim to be paid out in full, minus your contribution. If claims are made below the deductible, you have to front the bill yourself.
Though, how they work depends on the type of deductible your policy requires, and it boils down to four types:
- Flat (fixed) deductible: A set dollar amount applied to each claim (e.g., $1,000), regardless of the total loss. This is the most common structure and provides predictable out-of-pocket costs when claims occur.
- Percentage-based deductible: Calculated as a percentage of the insured asset’s value rather than a fixed dollar amount. Most often used in commercial property insurance and can lead to significantly higher out-of-pocket costs for high-value property.
- Per-claim deductible: Applies separately to every individual claim you file during the policy period. This is the standard approach for most business insurance policies and means multiple claims will each trigger their own deductible.
- Per-policy (aggregate) deductible: Applies once across all claims within a policy period, after which the insurer covers eligible losses without additional deductibles. While less common, this structure can be beneficial for businesses with higher claim frequency.
