Insurance Deductibles- Are they worth it? What are my options?
Insurance Deductibles, by design, are meant to benefit both the insured and the insurance carrier. This is a way to provide further incentives to insured’s to be active in preventing and minimizing claims but is also a helpful tool to provide premium savings which can help with your bottom line cost of insurance. The purpose of this article is let you know of some options that are out there and the additional risks which these deductibles put on yourself or your company.
Most of us are familiar with the idea behind deductibles. The help create a mechanism to reduce your workers compensation premium. Most employers look at this as a way to control and potentially lower their insurance premiums. This can be the case for most lines of insurance and they are very common in some more than others such as workers compensation insurance.
Seeing both sides of the picture is the idea to making sure you have no surprises and you are able to utilize deductibles to your advantage.
This is a pure example which brings me back to my first economics course in college. Trade offs (Guns vs butter). Funny of all the things for me to remember and if you don’t get this reference out some good Macro economics books at your local library( High quality reading material there).
A trade off is what you are giving up to get something else in return. A basic purchase is the most simple form of a trade-off (I give the soda machine $1 and in return it provides me with that cool refreshing beverage). Deductibles are the same thing; you are taking on additional risk in the form of paying a portion of claims in return for a lower insurance premium.
When advising my clients about deductible options I see a lot of individuals who tend to take it at first glance (Premium is higher than I would like, lets put a deductible on it). The point to focus on is what are you giving up and if that worst case scenario is to happen, do you have the capability to cover the deductible(s).
The trade off is premium vs. risk you take on personally. The deciding factors are the savings the deductible provides and the cash flow capabilities you have on any given day. This is true for Commercial insurance or personal insurance in making this decision. These deductibles could be per policy period or per claim. Its important to keep in mind as a $500 deductible per policy period might be feasible for you where if that same $500 is per claim (and lets say you have 5 claims) then you are on the hook for $2,500 in deductibles for those claims.
Workers comp insurance deductibles very common, especially on large premium accounts in excess of $50,000 in annual premium. Deductibles become helpful in achieving significant premium decreases for the risk you are bringing on. Sometimes these deductibles can lower premium as much as 20-30% on many accounts. A couple examples of these are:
- You pay up to the deductible on each incident and your insurance carrier
- This is typically a per policy term deductible where you will pay all claims up until a certain amount.
- These are deductible plans which incorporate a minimum and maximum total payment to the carrier which incorporates the claims activity into the total premium you pay.
The basics of deductibles could be discussed further in depth as far as what options are the best for each risk, but the great thing about these various types of deductibles are the flexible enough to make sure their is a right plan to fit your company.
These various plans and other similar plans can be discussed with experienced Insurance Specialists like The Insurance Shop to find a plan that fits your company best.