Franchise Deductible

Example

“The commercial property policy had a $10,000 franchise deductible, meaning any loss under $10,000 wouldn't be covered, but a $15,000 loss would be paid in full by the insurer.”

Memory Tip

Think 'franchise' like a business franchise - you either qualify completely (get full coverage) or you don't qualify at all (pay everything yourself).

Why It Matters

This deductible structure can significantly impact your out-of-pocket costs depending on the size of your losses. Understanding whether your policy has a franchise or traditional deductible helps you better prepare financially for potential claims and choose appropriate coverage limits.

Common Misconception

Many people assume a franchise deductible works like a regular deductible where you always pay the deductible amount. In reality, with franchise deductibles, you either pay nothing (if loss exceeds threshold) or pay the entire loss amount (if below threshold), creating an all-or-nothing scenario.

In Practice

Consider a business with a $5,000 franchise deductible on equipment coverage. If a computer worth $3,000 is damaged, the business pays the full $3,000 and receives nothing from insurance. However, if equipment worth $8,000 is damaged, the insurance company pays the entire $8,000 claim. This creates an incentive to potentially combine smaller losses or wait until losses exceed the franchise amount before filing claims.

Etymology

The term 'franchise' comes from Old French meaning 'freedom' or 'privilege,' referring to the privilege of having losses fully covered once they exceed the threshold amount.

Common Misspellings

Related Terms

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See Also