Deductible
A deductible is the portion of a covered loss that the policyholder pays before the insurer's payment begins, usually a fixed dollar amount per claim or occurrence. Higher deductibles typically mean lower premiums.
Last updated October 13, 2026
How a deductible works
When a covered loss occurs, the deductible is the share you bear. The NAIC glossary describes it simply as the portion of an insured loss paid by the policyholder. In practice, the insurer typically handles the claim and either subtracts the deductible from its payment or is reimbursed by you for that amount, up to the policy limit. Choosing a higher deductible generally lowers the premium, because you are keeping more of each loss.
Example
A company has a property policy with a $25,000 deductible. A covered fire causes $100,000 of damage. Subject to the limit and policy terms, the insurer pays $75,000 and the company bears $25,000. If the loss had been $20,000, the policy would typically pay nothing because the loss falls under the deductible.
Deductible versus self-insured retention
Liability policies sometimes use a self-insured retention (SIR) instead. IRMI describes the main differences: under a deductible the insurer generally handles claims from the first dollar and seeks reimbursement, while under an SIR the insured pays, and often manages, losses and defense costs until the retention is used up. The two can also differ in whether they erode the policy limit, in collateral requirements and in how certificates of insurance are handled. Many cyber and professional liability policies use the word "retention" for what functions like a deductible, so read the definition in the policy.
Common deductible structures
- Flat dollar amount. The most common form, such as $5,000 or $25,000 per claim.
- Aggregate deductible. A cap on the total deductibles you pay across all claims in a policy period, where offered.
- Different deductibles by coverage. A single policy may apply one deductible to property damage and another to a different coverage part.
What to watch for
- Per claim or per occurrence. Most deductibles apply to each claim, so multiple claims can mean multiple deductibles.
- Defense costs. Some liability policies apply the deductible or retention to legal fees as well as damages. Others do not.
- Affordability. A high deductible saves premium only if the company can comfortably fund it when a loss happens.
- Contract requirements. Some customer or lender contracts cap the deductible or retention you may carry.
More deductible types
- Per-claim or per-occurrence deductible. Applies separately each time a covered claim or occurrence happens. Related claims may be grouped as one, depending on the policy.
- Percentage deductible. Property policies sometimes apply a percentage of the insured value, often to catastrophe perils such as windstorm or earthquake, instead of a flat dollar amount. The percentage is applied to a stated value, so read what it is measured against.
- Time deductible, or waiting period. Business income coverage often starts only after a stated number of hours or days has passed. The insured absorbs the loss during that period. See business interruption.
- Franchise deductible. A less common structure in which the insurer pays the whole loss once it exceeds the deductible, rather than only the excess. Availability varies.
Deductible vs. related terms
- Deductible vs. premium. The premium is the price of the policy. The deductible is what you pay toward a loss when you claim.
- Deductible vs. limit. The limit is the most the insurer pays. The deductible is the amount the insurer does not pay.
- Deductible vs. coinsurance. In property insurance, coinsurance is a condition about how much insurance you carry. It can reduce a payment before the deductible is subtracted.
- Deductible vs. copay. Copays and health-plan deductibles belong to personal health insurance. This page focuses on commercial policies.
Second example: a retention on a liability claim
A hypothetical company has a professional liability policy with a $50,000 retention that applies to both damages and defense costs. A customer sues. The company pays its lawyers $30,000 in the first months, then the case settles for $120,000. Total costs are $150,000. The company bears the first $50,000, which it has already begun to pay through defense bills, and subject to the policy limit and any consent requirements, the insurer pays the remaining $100,000. If the policy applied the retention to damages only, the company would owe the full $30,000 of defense plus a $50,000 retention on the settlement, and the result would be different. This is why the wording on how defense costs interact with the retention matters.
Questions to ask your broker or underwriter
- Is the amount a deductible or a self-insured retention, and who handles the claim until it is met?
- Does the amount apply to each claim, each occurrence, each location or in the aggregate?
- Do defense costs count toward it?
- Do related or repeated claims count as one claim, so that only one deductible applies?
- Are there different deductibles for different perils, coverage parts or locations?
- Could a deductible reduce the policy limit, or does the limit sit above it?
- Do our contracts restrict how high a deductible or retention we may carry?
Why it matters for technology, AI, fintech and digital-asset companies
For venture-backed companies the deductible or retention is cash that has to be available when a claim happens, so it is both a pricing choice and a planning decision. Cyber and technology E&O policies typically use retentions that scale with company size, and ransomware, social engineering or regulatory coverage may carry their own retention. D&O policies often apply different retentions to different claim types. Hardware and data center companies may also see percentage deductibles on catastrophe perils in property insurance. See cyber and technology E&O, D&O coverage and insurance for venture-backed startups.
Related terms
Frequently asked questions
What is an insurance deductible?
A deductible is the portion of a covered loss that the policyholder pays before the insurer's payment begins, usually a fixed dollar amount per claim or occurrence. Higher deductibles typically mean lower premiums. The insurer then pays covered amounts above it, up to the policy limit and subject to policy terms.
What is the difference between a deductible and a premium?
A premium is what you pay to buy the policy, typically annually or in installments. A deductible is what you pay toward a covered loss when you make a claim. Raising the deductible usually lowers the premium, and lowering it usually raises the premium.
How does a deductible differ from a self-insured retention?
With a deductible, the insurer typically handles the claim from the first dollar and recovers the deductible from you. With a self-insured retention, the insured pays losses, and usually defense costs, up to the retention before the insurer becomes involved. Limit erosion and collateral terms can also differ.
Does the deductible apply to every claim?
Usually it applies separately to each claim or occurrence, though policies vary. Some policies use an annual aggregate deductible, and some coverages have different deductibles by peril or coverage part, so check the declarations page and endorsements for each coverage.
Is a higher deductible always better?
Not always. A higher deductible usually lowers the premium, but it increases what the company must pay out of pocket when a loss happens. It makes sense only if the company can comfortably fund the higher amount, and if its contracts allow it.
What is a percentage deductible?
A percentage deductible is calculated as a percentage of a stated value, such as the insured value of the property, instead of a fixed dollar amount. It is often used for catastrophe perils like windstorm or earthquake. Read the policy to see which value the percentage is applied to.
What is a waiting period or time deductible?
It is a stretch of time, often measured in hours or days, that must pass after a loss before business income or similar coverage begins to pay. The insured bears the loss during that period. Waiting periods can differ by coverage and by location.
What happens if my loss is smaller than the deductible?
The insurer typically pays nothing because the whole loss falls within the deductible. Some policies still require notice of certain losses or circumstances, so check the policy and ask your broker before deciding whether to report a smaller incident.
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