Deductibles in Commercial Insurance: What Business Owners Need to Know

By Jenny Holly Hansen | WBN News | May 3, 2025

When it comes to managing business risk, few tools are as critical — or as misunderstood — as the deductible in your insurance policy. Whether you’re insuring property, liability, or equipment, your deductible directly impacts both your coverage experience and your bottom line.

Here’s what business owners need to know about how deductibles work, why they exist, and how they can be used strategically to manage insurance costs.

What Is a Deductible?

In commercial insurance, a deductible is the amount your business agrees to pay out of pocket before your insurance policy begins to cover a loss. If your deductible is $5,000 and you have a covered claim worth $20,000, you’re responsible for the first $5,000 — your insurer pays the remaining $15,000.

Deductibles apply per claim, not per year, and they are most commonly found in policies such as:

Fire
Flood
Earthquake
Sewer Back-up
Water Damage
Equipment breakdown
General liability
Cyber Security
Professional Liability and Errors & Omissions Liability

Why Deductibles Exist in Commercial Policies

Deductibles were introduced to discourage small or frequent claims that could drive up overall costs for all policyholders. By having “skin in the game,” businesses are incentivized to manage minor losses internally, allowing insurers to focus on significant or catastrophic claims.

This helps stabilize premiums for everyone and makes the insurance market more sustainable. In the commercial world, where claim frequency and severity can be higher than in personal lines, this structure is especially important.

How Deductibles Affect Your Premium

There’s a direct relationship between your deductible and your annual premium:

Higher deductible = Lower premium

The logic is simple: by assuming more financial responsibility for smaller claims, your business becomes less of a risk to insure. Insurers reward that by reducing the cost of coverage.

Over time, these savings add up — particularly for businesses that rarely make claims or can absorb smaller losses through cash flow or reserves.

Strategic Use of Deductibles in Business

For many business owners, deductibles are not just about saving money — they’re a risk management decision. Here’s how to think strategically:

Use higher deductibles to self-insure smaller risks: Instead of paying a higher premium every year, set aside funds to manage minor losses in-house.
Balance deductible levels across lines of coverage: You might choose a high deductible for property damage but keep a lower deductible for cyber or liability policies where cash flow disruption could be severe.
Adjust deductibles as your business grows: A startup might need the protection of low deductibles, while a mature business with stronger reserves might benefit from higher ones.

Key Considerations When Choosing a Deductible

Before locking in a deductible, ask:

What’s the most your business can comfortably pay out-of-pocket?
Do you have a financial cushion or reserve to cover high-deductible scenarios?
How often have you made claims in the past?
Would a higher deductible impact your lender or contract obligations?

Final Thoughts

Deductibles are one of the few variables in your insurance policy that you control. For business owners, the right deductible can significantly reduce premiums and become part of a more efficient risk management approach.

Choosing your deductible should never be a guess — it should be a strategic decision that fits your financial structure, operational risks, and long-term goals.

Let’s Keep Talking:

Jenny is a business insurance broker with Waypoint Insurance.

She is also a business development consultant with Impresario Partners, helping Canadian Business expand overseas.

She can be reached at 604-317-6755 or jholly-hansen@wbnn.news. Connect with Jenny on LinkedIn at https://www.linkedin.com/in/jenny-holly-hansen-365b691b/. Connect with Jenny at BlueSky: https://bsky.app/profile/jennyhollyhansen.bsky.social

Let’s Meet Up:

Jenny Holly Hansen is a cohost with Chris Sturges of the Langley Impact Networking Group. You are welcome to join us on Thursday’s from 4pm to 6pm at: Sidebar Bar and Grill: 100b - 20018 83A Avenue, Langley, BC V2Y 3R4

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