How do you choose a deductible?
A higher deductible lowers the premium, but only suits the company if it can afford to pay it if something goes wrong. Here is how to work out the choice for your business insurance.
A higher deductible can lower the premium, but the company pays more itself every time there is a claim. It can make sense to choose the highest deductible the company can comfortably afford, and if you have few and small claims you usually come out ahead. A lower deductible can make sense when cash is tight or when small losses happen often.
What the deductible is
The deductible is the part of a loss that the company pays itself. In Swedish it is called självrisk. The insurer may cover the remaining eligible loss, subject to the policy limit. In business insurance the deductible is often set as a share of the prisbasbelopp, a reference amount the Swedish government fixes each year. So it rises along with prices.
The deductible is not always the same across the whole policy. Different parts often have different deductibles:
- Property and business interruption usually have a fixed deductible that you can choose.
- Legal protection often has a deductible set as a percentage of the cost, with a minimum amount.
- Professional indemnity, cyber and crime have their own deductibles in their policy terms.
How the deductible affects the premium
A higher deductible means you pay more towards a claim and may pay a lower premium. Whether it saves money depends on the premium difference and how often you claim.
A simple way to work it out:
- Find out how much the premium falls each year with the higher deductible.
- Work out how much more you pay yourself on each claim.
- Divide the first number by the second.
The answer tells you how often the company can have a claim before the higher deductible costs more. For example, 0.5 means the annual saving equals the extra deductible on one claim every two years, before considering other factors.
Example: Two deductible levels, made-up figures. A company can choose between a deductible of SEK 5,000 and one of SEK 15,000. The higher deductible lowers the premium by SEK 2,500 a year. On each claim, the company pays SEK 10,000 more itself. 2,500 divided by 10,000 is 0.25. In this simplified example, the higher deductible saves money if the business averages fewer than one claim every four years.
When a lower deductible can make sense
- Cash is tight. A deductible that forces you to borrow or pay salaries late is too high, whatever the calculation says.
- Small losses happen often. For example in a business with a lot of equipment out at clients' sites.
- A contract requires it. Some leases and client contracts set a maximum deductible.
Bear in mind too that every claim can affect your premium going forward. A policy with many small claims can get more expensive at renewal, even when the deductible covered most of them.
Frequently asked questions
Is the deductible tax-deductible?
Yes. A deductible the company pays for a loss in the business is normally a deductible expense, just like the premium.
Can I change the deductible in the middle of the policy year?
Often you can, but the premium is recalculated from the day the change takes effect. The simplest time to review the deductible is at renewal. There is more on what drives the premium in the guide what does business insurance cost.
Who pays the deductible if someone else caused the damage?
The business will normally pay its deductible when making a claim. If someone else caused the damage, the company can claim the deductible back from whoever is responsible, and the insurer sometimes helps with that.
