The deductible is the part of a claim the company keeps for itself: a lower deductible means more security for a higher premium, a higher deductible means a lower premium for more self-retained risk. There’s no single right figure – but there is a good way to think about it.
- The deductible is your own share per claim: the company bears this part, the insurer covers what’s above it.
- A good deductible is one the company can comfortably absorb – even several times a year.
- Keeping small claims “in-house” can be sensible – the big claim is exactly what should always be left to the insurer.
How does it work?
The deductible typically applies per claim, as an amount, a percentage, or a combination of the two. The logic is simple: administering very small claims is disproportionately expensive, so insurance is meant for medium and large claims – the deductible draws that line. Where the deductible is higher, the premium is lower, because the company takes on part of the claims frequency itself.
The decision framework
Two questions decide it. First: how large a sum can the company pay out without trouble after an unexpected claim – even twice or three times a year? That’s the reasonable upper limit for the deductible. Second: what’s the company’s claims profile like? Where small claims are common (glass, minor water damage, for example), a low deductible pays off more; where the risk is more rare-but-large, a higher deductible’s premium advantage works better. A different deductible per type of cover is also an option worth checking when comparing quotes: the comparison table.
The two typical mistakes
One extreme: a deductible squeezed to zero, with a higher premium – while the company could easily bear a smaller claim itself. The other: a deductible pushed so high, for the sake of a lower premium, that it leaves a painfully large hole at a real claim. The deductible isn’t a premium-cutting trick, it’s a risk-sharing decision – and it works when it’s a conscious one. And importantly: the deductible doesn’t replace correct sums insured – it doesn’t protect against underinsurance: the pro-rata rule.
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