It is important for each person to ensure the maximum and long-term protection and preservation of their property and minimize the risk of damage to it, and in case of accidents to be able to restore the property with minimal cost. This can be achieved through a procedure such as property insurance. But few people know that it is possible to reduce the amount of insurance premiums by using a franchise. Next, we consider in more detail the definitions of "policyholder", "insurance", "insurer" and "deductible in insurance." What are these simple words?
Insurance
Insurance is one of the varieties of economic relations used to protect property interests of people from various kinds of financial losses. The policyholder is a person who is interested in the safety of his property, periodically paying certain amounts (insurance premiums) to the insurer - the guarantor of real estate security.
Even if something happens to the property of the insured person, the insurance company will assume the obligation to fully or partially compensate for the damage caused (i.e., to make insurance payments) depending on the terms of the agreement and the deductible indicated therein.
Franchise
Insurance franchise - what are these simple words? This is a kind of privilege (in French translation from French), which allows you not to reimburse part of the losses incurred. It can be of a fixed size or defined as a percentage of the value of the property. In the event of an accident resulting in damage to property, the deductible will be deducted from the total amount of insurance payments.
Many policyholders distrust the franchise and try to avoid it. However, its use leads to significant cash savings. The insurance tariff depends on the size of the franchise: the lower it is, the higher the price of the insurance policy (but the damage will be covered more fully) and vice versa.
Depending on the conditions prescribed in the insurance rules, several types of deductible are distinguished.
Conditional
When using a non-deductible deductible, the damage will only be compensated if it exceeds the deductible, otherwise the insurer will not pay. Suppose the property was insured for one hundred thousand rubles, the deductible was set at five thousand rubles. If the property was damaged in the amount of 3,000 rubles, the insurance company will not pay for repairs, and if the damage caused to the property has exceeded five thousand rubles, then the amount of compensation will be paid in full, without deducting the deductible.
Currently, it is rarely used, although it is most interesting for both cooperating parties. This is due to fraudulent actions of customers who sought to increase the amount of losses incurred in order to obtain full compensation.
Unconditional with the established size
There is such a thing as an unconditional deductible in insurance. What is it? The deductible deductible, as the name implies, is always minus from the amount of insurance payments in a fixed amount without taking into account any conditions. This type of franchise is the most common.
Consider the example above. If the damage caused is less than 5000 rubles, the insurer will not cover it. If the damage to property is, for example, 12 thousand rubles, then compensation will be paid in the amount of seven thousand rubles minus the deductible.
This is the difference between conditional and unconditional franchises. When using a contingent deductible, losses are fully recovered.The amount of payment in this case will be exactly 12,000 rubles.
Unconditional as a percentage of loss
An unconditional deductible under an insurance contract may be established in proportion to the share of loss. Suppose it is 6% of the amount of damage. Then, if you incur a loss of 12,000 rubles, the insurance company will pay 11,280 rubles = (12,000 - (12,000 x 6%) as compensation).
For the insurer, the use of a fixed deductible is more profitable for small amounts of damage, and the interest rate of the deductible allows you to save on payments for large material losses of the insured person. The vast majority of companies conclude contracts with the use of an unconditional franchise, most often a fixed one, used to reduce the number of applications.
Temporary
The use of a temporary deductible in the agreement indicates that the insurance indemnity will be paid only if losses are received after a certain period of time. If the specified period has not yet expired, the policyholder will not receive compensation.
Temporary deductible in insurance calculated in units of time. If its type is not specified in the contract, by default it is conditional, that is, losses after a certain period are subject to compensation in full. Due to its specific features, such a deductible is most often used in insurance of business interruptions, where every minute of downtime leads to a loss.
The most widespread temporary deductible in the insurance contract was among newcomers, thanks to which they provide themselves with a deferral of payments. During this period, they manage to accumulate initial capital, from which insurance payments are subsequently made.
Dynamic
The dynamic franchise under the terms of the contract changes with each specific case. Different companies define it differently. Most often, when using such a franchise, the onset of the first insured event is paid in full, and each subsequent one reduces the amount of payment by a certain amount.
For example, a dynamic franchise may look like this: 1 case of damage to property - there is no deductible; 2 case - the deductible amount in insurance is 5%; 3 case - the amount of payment is reduced by 20%, etc. It turns out that the more often clients get into risky situations, the greater part of the damage they have to pay at their own expense. Using a dynamic deductible is the best option in CASCO insurance.
Preferential
This term is used to describe in the agreement those cases when the deductible in insurance is not applied. Different companies interpret it differently.
Most often, the concept of preferential deductible is found in car insurance. Provided that the accident is not due to the fault of the insured, but because of the driver of another car, the deductible is not used. In practice, reimbursement of a franchise can also be obtained using an unconditional type of franchise from the insurer responsible for the accident, but for this you will need to additionally collect a full set of documents.
Making a "preferential" franchise reduces the amount of insurance premiums less than using other varieties, including unconditional.
High and recourse franchises
When drawing up large property insurance contracts, they sometimes include conditions for a high deductible, the amount of which starts from one hundred thousand dollars. In case of damage to property, the insurance company pays the entire loss until the full restoration of the facility. Only after this, the person insured within the property gives the insurance company a reimbursement of the set deductible amount. The high deductible in the property insurance contract most fully protects the interests of the insured in court.
The principle of operation of a regression franchise is the same as that of a high one, with one exception: the amount is significantly less. The insurance company fully compensates for the damage received, and the policyholder returns the stipulated deductible amount.
Required
This type of deductible is most common in CASCO insurance. This is the requirement of the insurance company, namely, that the extension of the validity of insurance is possible only with the mandatory deductible. A mandatory deductible in insurance is prescribed in the agreement in cases where the client has suffered a certain amount of loss under the previous contract. If the policyholder refuses to sign a new document, his further cooperation with the insurance company is terminated. The amount of the mandatory deductible is calculated based on the amount of previous losses.
Car insurance
Consider what a deductible is in CASCO and CTP insurance.
Most often, the deductible is used in voluntary car insurance CASCO and approved by mutual agreement of the parties. The benefit of the client will depend on his driving style and experience. The more careful the driver, the more he can save when signing up an insurance contract.
If the client can independently pay for minor repairs, rarely gets into an accident and wants to protect the car only from theft, it makes sense for him to draw up a maximum deductible with minimal insurance premiums. However, in the event of a serious accident, half the cost of the repair will fall on the shoulders of the insured.
If the driver often gets into an accident, the insurance company may oblige him to issue an unconditional deductible for the extension of the contract period or refuse to prolong it further. Therefore, it is often unprofitable for customers to get into accidents.
In CASCO insurance, the presence of even a 1% deductible in the clauses of the agreement can significantly reduce the price of the insurance policy. The size of the franchise is established by mutual agreement. The deductible is determined by the state in the insurance of compulsory motor liability insurance.
Franchise Compensation
Since insurance companies reimburse only losses minus the deductible prescribed in the contract, some companies offer insurance to reimburse the deductible. Most often, this practice is found in car rental companies, which reduce the driver's liability to zero amount and completely reimburse him the cost of the franchise.
In addition to full compensation for the deductible, this insurance policy covers damage to the wheels and windows of the car. Such insurance can be carried out in advance, even six months before the rental car, and it is valid worldwide.
pros
At first glance, it seems that the franchise in insurance is beneficial only to insurers, and policyholders are left with nothing with it. However, this is not quite true. Insured persons also receive their benefits.
- Availability of a discount when paying an insurance premium. If insurance is just a formality, and the possibility of incurring serious losses tends to zero, then the best option would be to establish the maximum deductible with a simultaneous reduction in the contribution.
- Upon receipt of minor damage to property, the client pays for repairs on his own. As a result, time is released that the policyholder would have to spend on filling out a large number of paper documents and visiting the insurance company.
- Due to the fact that the damage is not fully compensated, the client seeks to handle his property more carefully and avoid risk whenever possible, which also affects the reduction in the probability of an insured event.
Summarizing
In general, the design of a franchise leads to significant savings in money and time, which is an important factor for serious and successful people who value every moment of their life.If a deductible is used, property insurance will be mutually beneficial to provide certain prerogatives to both insurance companies and individuals with real estate insured under a contract.