Understanding a Deductible Reimbursement Policy

Although most people understand the concept of a deductible from dealing with their auto insurance policy, they may not understand why there should be a deductible in the first place. Insurers use this strategy to prevent a “moral hazard” with their clients. This means that the cost of the deductible incentivizes clients to be better drivers, because there is still a consequence to an accident. This is important to an insurer, and clients who accept a healthy deductible generally get a significant break on their premiums. However, some insurance policies require such a high deductible that the insured remains vulnerable in case of an accident. This is where a deductible reimbursement policy comes in.

 

Unmanageable Deductibles

 

Some insurance policies allow “first dollar” coverage, meaning that for a particular incident, the insurance company will pay the first dollar (and the last) of accident claims. There is no deductible. On the other hand, certain policies require such high deductibles that there is little chance the insured will be able to afford to meet the deductible. One example of this is the owner/operators of long-haul trucks. Often, the motor carrier will insist on a deductible in the range of $5,000 to $10,000. This amount can make up a quarter of the operator’s annual salary. Fortunately, firms offering specialty insurance will cover most or all of the deductible, making the expense more manageable. This is the essence of a deductible reimbursement policy.

This post was written by , posted on June 28, 2014 Saturday at 10:30 am

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