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Why are deductibles (or excesses) applied to insurance policies?

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Why are deductibles (or excesses) applied to insurance policies?

asked Oct 11, 2012 in Risk and Insurance by BuiltIntelligence (870 points)  

1 Answer

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Best answer

They are applied in order to:

  • Reduce the risk which the insurer takes on.
  • Ensure that the insured party retains a degree of liability by having to pay a deductible (or excess). This motivates him to take more care in avoiding the loss or damage.
  • Decrease the level of premiums paid by the insured party
  • Negate the administration costs of processing a large volume of small claims.
answered Oct 11, 2012 by BuiltIntelligence (870 points)  
edited Nov 9, 2012 by Rob Glasspool