Deductible or percentage deduction, which is the best option for your project?
Hello!
In this #MondayBlog we brought a very interesting subject to share with you.
This topic is important because, in the event of a claim, the probability of a deductible being applied before its indemnity is released is very high, especially in products related to production insurance.
The basic
You've probably heard of it, but it's good to remember, insurance is a product based on risk and probability.
Since the time of Cleopatra - yes, this was the first historical record of an insurance being put into action - the insurance industry has been accumulating information about risks, and feeding a database with various statistical calculations, with the purpose of pricing a certain asset to be covered in a policy.
Quite simply, we can say that if your project will all be filmed indoors, for example a studio, your risk is “x”, but if your project is filmed outdoors, the risk is “y”, if it is in the middle of a war, it's “z”. And the rate of each situation will be applied to its value at risk, arriving at the final cost, or better said, the insurance premium.
In the meantime, the claims that have already occurred, together with several other factors, determine your insurance premium and also your deductible.
That's why insurance companies ask their customers for a lot of information through questionnaires, so they can fairly price what you want to cover, as well as protect themselves from risks they don't want to take.
Therefore, we advise our clients to answer the risk analysis questionnaires with transparency, sometimes what the client finds “dangerous” or “costly” will not burden their final premium at all, and there will be no stress when it comes to receiving what is due in the event of a claim.
Insured's participation in risk
Both deductibles and participations are pre-established values in the policy. The higher the value of the participation and deductible, the lower the risk of the insurer.
Therefore, the lower the price of insurance.
Remembering that the indemnity only actually happens if the amount to be indemnified is higher than the deductible/participation present in the policy. The insured can choose to increase the deductible/participation amount in order to pay less in the premium. But by doing so, your share of the payment for repairs resulting from claims increases.
Due to the knowledge of many cases prior to yours, the insurance company can either establish a minimum deductible/participation in the contracted coverage, or the insured can ask for a deductible/participation with higher values, in order to make your insurance cheaper.
It is very important to pay attention to these details in order to avoid unpleasant surprises during the settlement of a claim and consequent indemnity.
We at Prospecto believe that our customers need to be well-informed and that all doubts must be clarified before signing the contract.
Deductibles
Depending on the type of product purchased, franchises are presented in two ways: simple or flat deductible.
And for simplicity we will explain the concepts with examples, ok?
Simple Deductible
Let's say that Paulo has taken out insurance with coverage of R$10,000.00 and simple deductible of R$2,000.00. The repair of his property cost R$1,000.00.
As we are talking about a simple deductible, Paulo will bear the cost of the repair himself, as the loss amount was lower than the franchise.
Now, what if the repair had cost R$5,000.00? In this scenario, the insurer would bear the full cost of the repair.
Simple to understand, isn't it? What happens with the simple deductible is that the insured's participation in the risk is limited to losses that do not exceed the established deductible value. If the claim amount exceeds the established deductible, the insurer bears the amount, always respecting the insured amount limit.
Flat Deductible
This is the most commonly adopted deductible in the market, including audiovisual insurance products, equipment and events.
If Paulo, in the example above, had in his hands an insurance with a flat deductible, the indemnities would occur as follows. Let's say that Paulo took out the same insurance with coverage of R$10,000.00 and deductible of R$2,000.00.
Once again, his repair amounted to R$1,000.00, and once again, the damage was entirely with Paulo.
However, if the repair cost BRL 5,000.00, the deductible of BRL 2,000.00 will be applied and the insurance company will only bear the remaining cost of BRL 3,000.00.
Note that once again, if the loss is less than the deductible, the insured will bear the cost of repairs in full, but if the amount is greater than the deductible, it changes a lot from the simple deductible, as now the insured will pay the amount referring to the deductible, and the insurer will pay the remainder.
Percentage Deductible
It differs from the usual deductible because there is a percentage value (%) together with the minimum value in the application of the participation.
But, do you know how to apply a percentage deductible in the event of an indemnifiable claim?
We return once more with Paulo, and this time his insurance policy contains the following information: coverage of R$ 40,000.00 and 10% of percentage deductible with a minimum of R$ 2,000.00.
If the repair of his property cost only R$1,000.00, Paulo will not be able to call the insurance company, as the minimum of R$2,000.00 has not been reached.
If the loss is R$30,000.00, then the amount for the participation will be deducted from the amount to be indemnified, and the insurer will pay the remainder, as shown below:
Loss amount: R$30,000.00
Percentage Deductible: BRL 3,000.00 (10%, with a minimum BRL 2,000.00)
Indemnity: R$ 27,000.00
And now, are you ready to decide between flat deductible and percentage deductible on your insurance policy?
We hope to have clarified the differences, advantages and similarities of the various forms of participation of the insured in the risk of insurance.
I hope our content for today has helped you understand the need for this type of coverage in order to bring peace of mind to your daily work.
Remember, we at Prospecto have the perfect solution to cover your equipment and other assets.
See you next Monday.
An excellent week, lovers!
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