We will pay ourselves: what is a deductible insurance And how does it affect the cost of insurance

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This is the part of the loss that the insurance company will not compensate for in the event of an insured event. That is, the presence of a franchise implies that the insured will cover a certain amount of damage on his own, at his own expense. What are the varieties of franchises and how they “work”, studied Mind. What is insurance for?

The benefit of an insurance company from having a franchise is obvious: it does not pay for very small and relatively small losses. That is, it saves money. Also, the insurer does not divert resources to the settlement of insured events that fall under the franchise. After all, to organize the payment, it is necessary to attract specialists, pay them a salary, and fiddle with documentation.

But upon closer examination, the franchise gives certain advantages to the insured. First of all, it affects the cost of the policy. The higher the deductible, the cheaper the insurance; the lower, the more expensive. For example, in CASCO, the difference in the price of a policy in the presence of maximum deductibles (about them – below) and their absence can reach 30-50%. In travel insurance, policies with a deductible are 10–30% cheaper than without one.

In addition, the franchise disciplines the insured. After all, it’s one thing to drive a car, knowing that the insurer will cover any scratch. And it’s completely different if, in the event of an accident, you have to pay 5,000–10,000 UAH out of your pocket for repairs.How is the insurance calculated?

Its size can be fixed in absolute terms, in “live” money. 

The second option is a deductible, which is calculated as a percentage of the sum insured (most often) or the amount of loss (occasionally). Let’s say 2%, 5%, 10%. Accordingly, if the deductible is tied to the amount of damage, then the more severe the consequences of the insured event, the more costs will fall on the shoulders of the insured.What are the types of insurance?

The most common franchise options are conditional and unconditional. A conditional deductible means that if the loss does not exceed the agreed amount, the company does not make a payment. If the amount of damage is greater than the deductible, then the insurer covers the entire loss, including the deductible.

Let’s say a conditional franchise is 2000 UAH. At the same time, the damage as a result of the insured event amounted to 1800 UAH. Accordingly, the insurance company pays nothing to the client. The second situation: with the same franchise, the loss is already UAH 5,000. As a result, the insurer will pay all 5000 UAH.

An unconditional (deductible) insurance means that regardless of the loss, the amount of the payment is reduced by the amount of the franchise. 

There are other types of franchises as well. One of them is dynamic. “With this type of franchise, the amount of compensation may vary depending on the number of insured events. Usually, the damage in the first case is fully compensated, and in subsequent cases, the agreed deductible amount is deducted from the amount of compensation. For example the first insured event – a deductible of 0% is applied; the second and subsequent – a deductible of 0.5% is applied, ”. Its application is subject to certain conditions. For example, if the car owner violated the Rules of the Road and became the culprit of an accident, the payment will be subject to the deductible, but if the insured event occurred through no fault of his own, the deductible will not apply.

Another type of franchise is regressive. Its essence is that the insurance company fully compensates the client for the entire loss, and only after that collects the deductible from the insured.In what types of insurance does the apply?

Most policyholders get acquainted with the franchise when concluding a CASCO contract. Insurance companies “sew” into the policy a deductible for damage and a separate franchise for the destruction of cars and theft. For damage, the deductible, as a rule, can reach 5%, for destruction and theft – 5-10% of the sum insured. Some insurers use an unconditional franchise in the amount of 25-30% of the sum insured as a kind of penalty for those cases when the car got into an accident and was driven by a driver who, under the contract, did not have the right to do so.

“Motorists in Western European countries most often choose insurance coverage with a deductible of 3-5%. They immediately receive savings after the contract. After all, an insured event may not occur, but they are ready to cope with minor losses, scratches on their own. In Ukraine, 0% is still the most popular franchise. In second and third place – 0.5% and 1%, respectively. Although our portfolio already has a lot of regular customers who sensibly choose a franchise of 5%,” says insurance company .

The insurance company covers from 20 to 70% of the cost of the service received (outpatient treatment, hospitalization, tests), and the rest is paid by the patient. That is, in fact, this is an unconditional deductible, the size of which ranges from 30-80% of the payment amount.

By Master James

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