Deductible (Property & Casualty)
A deductible is the amount the insured must pay out-of-pocket before insurance coverage begins, representing a form of self-insurance that reduces premiums.
Exam Tip
Higher deductible = lower premium. Deductible applies PER CLAIM in P&C. Know special wind/hurricane deductibles!
What is a Deductible?
A deductible is the portion of a covered loss that the policyholder must pay before the insurance company pays its share. Higher deductibles mean lower premiums because the insured assumes more of the risk.
How Deductibles Work
| Scenario | Amount |
|---|---|
| Total Loss | $5,000 |
| Deductible | $1,000 |
| Insurance Pays | $4,000 |
| You Pay | $1,000 |
Types of Deductibles
| Type | Description | Example |
|---|---|---|
| Flat Dollar | Fixed amount | $500, $1,000 |
| Percentage | % of coverage limit | 2% of dwelling coverage |
| Split | Different amounts for different perils | $500 standard, $5,000 wind |
| Waiting Period | Time before coverage begins | 14-day elimination period |
Deductibles by Coverage Type
| Coverage | Typical Deductible |
|---|---|
| Homeowners | $500-$2,500 |
| Auto Collision | $250-$1,000 |
| Commercial Property | $1,000-$10,000+ |
| Health Insurance | $500-$10,000+ |
Deductible Trade-offs
| Higher Deductible | Lower Deductible |
|---|---|
| Lower premium | Higher premium |
| More out-of-pocket risk | Less out-of-pocket risk |
| For those with savings | For those who want protection |
| Discourages small claims | Easier to file claims |
Special Deductible Rules
- Hurricane/Wind: Often percentage-based (2-5% of dwelling)
- Earthquake: Typically 10-15% of coverage
- Flood (NFIP): Separate deductible, $1,000-$10,000
Exam Alert
Deductibles apply PER OCCURRENCE, not per year (unlike health insurance annual deductibles). Know how they interact with coinsurance calculations.
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Related Terms
Coinsurance (Property Insurance)
InsuranceCoinsurance is a property insurance provision requiring the insured to carry coverage equal to a specified percentage (usually 80%) of the property value or face a penalty at claim time.
Actual Cash Value (ACV)
InsuranceActual Cash Value is a property valuation method that equals replacement cost minus depreciation, representing what property is worth today after accounting for wear and tear.
Premium (Insurance)
InsuranceAn insurance premium is the amount paid by the policyholder to the insurance company for coverage, typically paid monthly, quarterly, or annually.