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A Workers Compensation Term Defined, Described and Explained

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A policy provision where the insurer will pay only that part of any loss which is in excess of a specified amount, the deductible.

The deductible is a sharing of risk between the insurer or that organization or entity providing the protection and the policyholder or user of the protection. The concept of a deductible is quite interesting. Take just a minute and think about it....if an insurance company provides an insurance policy without a deductible then there is no real incentive for the policyholder to not turn in small claims. This action would have an adverse effect on the insurance policy, its profitability as far as the insurance company goes and create a pricing issue for the policyholder. So in order to provide a policy without a deductible means the insurance company must anticipate in its pricing of the product the additional claims frequency and use of the product. Simply put, without a deductible; a policyholder would turn in more claims, the insurance company would pay more claims and the cost of the insurance policy would go up. So the concept of a deductible is one of sharing in the risk, even though usually on a small basis, it's still sharing on the risk. Now I realize these are pretty broad statements and there would be many other factors that would go into the mix but in very simple terms this is the process.

Insurance deductibles are commonly associated with some form of property insurance. You'll certainly find deductibles on homeowners policies, commercial building and personal property policies along with physical damage coverage on equipment and vehicles in the form of comprehensive or damage to your car other than collision and collision coverage. Deductibles are also quite common in the health insurance arena and most folks are used to paying a deductible or co-pay when making a doctors office visit. It is less common to the normal insurance buyer to be faced with deductibles on liability coverage or workers compensation insurance. However in the business insurance world these options are readily available and used daily to help share the risk and reduce the cost of these types of coverage.

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