When it comes to insurance policies, one may not be familiar with the multiple terms associated with a policy. A deductible is such a term in the glossary of insurance policies. Health policies, liability plans, individual policies, and accidental insurances have the term deductible mentioned in the policy details booklet.
Now, the question is – whether a D&O liability insurance plan offers deductible? Read along and get a fair idea about the concept of deductible in a policy. Find out if the D&O policy you are thinking of purchasing for the company or business you own contains such a feature.
Deductible in an insurance policy
Deductibles are a crucial part of insurance contracts. The deductible is a specified amount that the policyholder is responsible for paying toward an insured loss. In simple words, the deductible is a concept of sharing between the insurer and the policyholder. If the deductible amount is more, the premium gets low.
It can be an annual deduction depending on the policy norms. The policyholder or the one paying the premium pays it from their pocket before the insurer provides financial coverage. It is a risk-sharing offer between the insurer and policyholder. The range of deductible amounts is diverse with every insurance company having a different scheme.
The difference between Deductible and SIR
People often get confused between a deductible and SIR(self-insured retention) in insurance. But there are notable differences between these two and, to understand if the D&O insurance has a deductible or not, you have to recognize the difference. Deductible and self-insured retention have a similar purpose in insurance. For a policy having a deductible, the insurer pays for every claim and then bills the policyholder for adjusting the deductible amount. While in the SIR, the insurer does not pay for claims falling outside the retention. So, while purchasing a policy, do not get confused with the self-insured retention as the deductible amount.
Deductible in liability policy: When a deductible gets included in liability insurance, it is only valid for the damage. The insurer provides coverage benefits for the defense expense and all other expenses related to the claim. These costs are not subjected to a deductible.
Optional or mandatory?
Having a deductible in the insurance policy is not a mandatory aspect. So, whether the D&O policy you are purchasing offers a deductible or not, depends entirely on the decision of the insurance provider. The insured person can request the inclusion of deductible in the policy.
Understanding functionality of the D&O policy
A D&O insurance policy caters to the directors and high-ranked officials in a business or organization to meet the defense cost incurred in a legal procedure. The legal allegation brought to the supreme executive officers may be due to reasons like – misconduct, wrongful action, discrimination, breach of corporate law, misstatement, etc. Any action that causes a financial loss to the employees, clients, stakeholders can create a ground for lawsuit filing against the high-ranked professional. In such times, the policy pays for the claims and meets the expense for defense proceedings in the court and other settlements (penalties).
A way to decrease the cost – Having a deductible included in the policy claim coverage aspect can alter the terms for the policyholder. Going for a deductible can be a cost-cutting factor in insurance premiums. How? A higher deductible indicates the policyholder will have to pay more during the claim. It is particularly beneficial for those who are confident of lesser claim probabilities during the policy term.
Deductibles in the different agreements of D&O policy
Does a D&O policy contain the deductibles? The answer is yes and no! How? There are different agreement parts in the Director and Officers’ liability policy. Not every agreement contains the feature of deduction. It depends on the purchaser to include the agreement parts. Read along to know which parts contain deductibles –
- Side – A part: This agreement part provides the coverage benefits for the individuals and, here, you cannot find any option for deductibles. The Side-A agreement is usually provided on the basis of “dollar one”.
- Side – B part: This agreement part in the D&O policy provides coverage benefits for companies by reimbursing for indemnification that the organization provides to the insured professional(director or officer). Side-B can include a deductible.
- Side – C part: Entity coverage or the Side-C part of the D&O liability policy includes the coverage norms for the organization (private or public). For legal allegations against the company or business, the D&O policy will bear the legal cost. Like the Side-B part, here also, the deductible is applicable.
The need to learn about the specifications
When you purchase an insurance policy, you always inquire about the coverage aspects and exclusions. Why not the deductibles? Having the option to share the expense through deductible can cut the premium for which it can ease the requirements. So, you should ask about the availability of the feature in the policy you are purchasing. The insurance broker or seller can guide you rightly with the right information and also guide you on whether it will be beneficial for the company’s risk management necessities.
Liability policies having a deductible
Not every policy has the option of deductibles. As discussed above, the D&O policy contains different agreement clauses determining whether you can include the feature or not. Similarly, it is better to note the liability policies that contain the same feature. The liability insurance plans having deductible are – general liability policy, errors and omissions policy, professional liability policy, cyber liability insurance, business owner’s policy, etc. So, if you want to keep your D&O policy limited to the Side-A part agreement clause only, then also you can go for the other liability insurances containing deductible features and avail of the benefits.
Reasons why insurance companies offer deductibles –
- To discourage the policyholder from filing a claim
- Reduce the amount to be paid by the insurer for every claim
- Eliminate the chances of claim submission for minor cases
Find the answers with PlanCover.
If you have further questions regarding deductibles in the D&O policy, connect to PlanCover. A leading name among the insurance broker companies in India, PlanCover, brings different liability insurances for businesses. Get in touch with their proficient team and resolve the queries you have in mind.