Large Deductible Policy

Example

“The manufacturing company chose a large deductible policy with a $250,000 deductible to reduce their annual premium from $500,000 to $200,000.”

Memory Tip

Large deductible = 'Large responsibility, large savings' on premium costs.

Why It Matters

These policies allow businesses to significantly reduce insurance costs while maintaining protection against catastrophic losses. Companies can invest the premium savings and potentially earn returns while building reserves for smaller claims they now handle internally.

Common Misconception

Some businesses assume large deductible policies mean the insurer won't pay small claims at all, but insurers typically handle all claims administration and seek reimbursement from the policyholder for amounts within the deductible. The insurer still provides claims expertise and management services.

In Practice

A retail chain with $50 million in annual revenue chooses a $500,000 large deductible policy, reducing premiums from $800,000 to $300,000 annually. Over five years, they save $2.5 million in premiums. During this period, they experience $1.8 million in claims within their deductible, which they pay from their reserve fund, still saving $700,000 overall while maintaining full catastrophic protection above $500,000 per incident.

Etymology

Evolved from traditional deductible concepts as businesses sought ways to reduce insurance costs while maintaining protection against major losses. The 'large' designation typically refers to deductibles exceeding normal commercial amounts.

Common Misspellings

Related Terms

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