How does a franchise deductible work?

A franchise deductible operates on the principle that it creates a threshold or floor amount which changes how claims are processed. Specifically, when the total amount of damages exceeds the specified deductible, the insurer becomes responsible for covering the entire amount of the damages, not just the excess over the deductible.

In this case, when a policyholder faces losses that are less than the deductible, they are responsible for covering those damages entirely. However, once the claim reaches the deductible threshold, the insurer pays for all subsequent damages. This approach incentivizes policyholders to submit claims only for significant losses while also providing them with a degree of financial protection against larger claims. Consequently, when the overall damages fall short of the deductible amount, the policyholder must absorb those costs independently.

This method of handling deductibles ensures clarity in how claims are managed and encourages policyholders to consider the financial implications of submitting smaller claims.