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To explain what deductibles in liability insurance are, we first need to clarify a few previous concepts, such as what this type of insurance is and what deductible means in insurance terms.
What Is Liability Insurance?
In general terms, liability insurance is any insurance contract through which we transfer the risk of our activity, whether professional or personal, to an insurance company in exchange for a premium.
The most popular example of this type of insurance is third-party liability, which forms the basis of your car policy. Basically, although it may also include other covers, car insurance is a liability contract through which the insurer undertakes to pay for the damage you cause to others if you have a car accident and are at fault.
There Are Other Types of Liability Insurance
Examples include hunters’ insurance, insurance for owning dogs considered potentially dangerous, and professional liability insurance. The latter, less well known to the general public, covers errors you may make in your work if you are self-employed.
For example, if you are a gas or electrical installer, or if you work as a lawyer or tax adviser. These policies are also available for companies with employees. There are even policies of this kind for directors and officers, covering possible errors they may make in the performance of their responsibilities.
The Concept of Deductible in Liability Insurance
It is also useful to know what a deductible means in the context we are discussing. You may have had comprehensive car insurance with a deductible, or know someone who has. The concept is the same for this type of policy as it is for liability insurance.
Concept or Definition of Deductible
The deductible is the part of the indemnity for the damage caused that remains payable by the policyholder.
Here is an example. Imagine you are an electrical installer and you have liability insurance with a EUR 300 deductible. In one of your jobs there is a problem that causes damage worth EUR 1,200. Your insurer would pay EUR 900, while the remaining EUR 300 would be paid by you.
Conclusions
In short, the advantage for the insured party of including a deductible in liability policies is that you will pay a lower premium.
The insurer considers that, because you must pay part of the claim, you will be more careful when carrying out your work and there will be less risk of the claim occurring.
There are also two types of deductibles in liability insurance: fixed and percentage-based.
The example above corresponds to the first type, fixed deductibles. A percentage-based deductible would be, for example, having to pay 10% of each claim, regardless of its value. The insurer would assume the rest, in other words 90%.[/vc_column_text][/vc_column][/vc_row]