Deductible is a specified amount that the insured must pay on a claim before the insurance company will cover the rest of the claim.

For example: A severe windstorm has caused $8,000.00 worth of physical damage to a retail store, including its windows, equipment and roof. The business policy purchased contains a deductible clause of $1,000.00. As a result, the insurance company will settle the claim and compensate the business owner with $7,000.00 ($8,000.00 worth of damage - $1,000.00 deductible)

The function of a Deductible ensures that insurance does what it is intended – To pay for substantial losses but not minor ones. In most cases, the higher deductible you select, the lower your annual insurance premium will be.