Commercial insurance is like other common types of insurance in that it requires the insured company or policyholder to be responsible for certain portions of losses before the coverage kicks in and covers the rest. This is called the deductible. If you’re a fairly new commercial insurance policyholder or looking to better understand your potential out-of-pocket obligations, here’s what you need to know about how commercial insurance deductibles work.
The Purpose of Commercial Insurance Deductibles
The general purpose of commercial insurance deductibles is to prevent the insurance company from having to pay the full amount for every single loss, especially smaller ones. However, this is ultimately good for commercial property owners. By having to pay a certain amount yourself for business-related losses, your rates can be kept at a more reasonable level. Deductibles also reduce the possibility of having your rates increased because of smaller losses you’re able to cover yourself.
Filing a Commercial Claim
When you file a commercial insurance claim, you’ll have to pay the amount you’ll need to cover yourself before the insurance company covers the rest of the expenses. It’s more common for commercial policyholders to opt for higher deductibles to keep insurance rates lower.
Calculating Deductibles for Commercial Policies
Commercial insurance providers base rates on more business-specific factors, such as the property’s location and value. As for how deductibles for commercial policies are calculated, there are two common options:
• Flat deductible
• Percentage deductible
A straight, or flat, deductible is a specific amount that applies to each potential type of loss covered by your commercial policy. This typically applies to any add-on coverage you may have opted for as well. In this case, the flat rate is subtracted from the total loss, and your insurance provider pays what’s left.
Each type of coverage has a flat rate that applies. For instance, let’s say your business is vandalized and then a fire breaks out. In this instance, there would be a flat rate for the vandalism coverage and another rate that applies to the fire damage coverage.
A percentage deductible typically applies to catastrophic losses, which usually include natural disasters, such as hurricanes and earthquakes. For example, if your business property is damaged by a hurricane, the payment on your claim would be based on a certain percentage of the total costs associated with the damage. This percentage is usually based on the value of the damaged property that was insured.
The specific percentage that applies is determined by the type of commercial coverage, the terms of the policy, and any applicable state laws. Whether or not a percentage deductible applies depends on the nature of the damage and how it’s classified. For instance, if the damage to your property was due to a severe windstorm, the deductible that applies would be based on the specific terms of the policy and not a percentage.
Operating a business means assuming certain kinds of risk, and the type of commercial insurance needed, along with the deductibles, often vary according to company size and type of operation. For affordable, reliable commercial insurance as well as homeowners, renters, motorcycle, and auto insurance, call on the trustworthy professionals at Altra Insurance Services. Reach out to us today at (800) 719-9972 to learn how we can satisfy all your insurance needs.