Know Your Deductible

Picture this scenario- You own a pizza parlor. It’s late Tuesday evening and business is closed as you are getting your premises fumigated. You have the pest control company at your premises to “bug bomb” the joint. As a passerby walks by your front window, he thinks he sees smoke and frantically calls the fire department. The fire department arrives and see’s “smoke” so they break down your front door and hammer through your front window to access the interior only to find out that the white stuff wasn’t smoke. Rather, a routine pest control measure you’re trying to take to maintain your restaurant.

The end result? You get called to come down to the scene. You have to temporarily board up the front door and windows to keep things safe until the morning; and when the morning arrives, you have a contractor come out to fix everything so that you’re back in order for business.

When it’s all said and done, the contractor gives you an invoice for $2,800. You call your insurance carrier to put a claim in on the loss. In the process, your claims adjuster advises that you carry a $2,500 deductible. “Ahhh man! That means it’s coming out of my pocket!”

Have you ever experienced a similar situation where you find yourself paying out a loss entirely because your deductible was high? Was it burdensome for you to have to pay, or do you wish you had a lower deductible to save some cash?

The reality is people’s preferences are different when it comes to insurance and their deductibles. Some businesses like higher deductibles to save some money on their insurance premium. They may feel anything under their deductible amount wouldn’t be an issue to cover out-of-pocket. Or, they don’t anticipate many losses, so it’s not a big deal. For others, an unexpected loss like this might put them in a financial bind, but they never knew what their deductible was in the first place.

Solution

The story above is a true story. It happened to a client of mine last week. Since he carried a $2,500 deductible on a $2,800 insured loss, we didn’t move forward with the claim. Yes, it was a burden to have to fork out $2,800, but luckily it wasn’t too much for him to handle. However, we did make some changes on the deductible, and it really didn’t impact the premium much at all looking at the big picture:

• Changing the deductible from $2,500 to $1,000 = Additional annual premium of $114
• Changing the deductible from $2,500 to $500 = Additional annual premium of $194

So what’s the moral of this story? For one, know what property insurance deductible you carry, and two, picture yourself in a loss. Can you handle the deductible, or will it put a dent into your savings? Why not play with the different deductible options to see what difference in annual premium you’re looking at. Really, it’s not much in the grand scheme of things.  You never know when the fire department might be banging down your front door.

–JK