What Is an All Perils Deductible in Insurance?
Learn about the all perils deductible: a single payment threshold applying to most covered insurance claims.
An insurance deductible represents the initial sum a policyholder is responsible for paying directly out-of-pocket when a covered loss occurs. Deductibles function as a mechanism for risk-sharing between the policyholder and the insurer. They aim to reduce small claims and encourage policyholders to mitigate potential losses. The specific deductible amount is stated within the policy’s declaration page.
Defining the All Perils Deductible
An all perils deductible applies to damages or losses stemming from any covered event unless a specific exclusion is listed within the policy. This type of coverage is often referred to as “open perils” or “special perils” coverage. It broadly covers all causes of loss unless explicitly excluded. An all perils deductible applies a single, predetermined amount across a wide spectrum of potential damages. For example, whether damage results from a fire, theft, or a burst pipe, the same all perils deductible would apply. The burden of proof generally lies with the insurer to demonstrate that a specific exclusion applies if they deny a claim.
How an All Perils Deductible is Applied
When a covered incident occurs, the policyholder is responsible for paying the all perils deductible first. This payment is made to the contractor or service provider performing the repairs, rather than directly to the insurance company. After this initial out-of-pocket expense is met, the insurance company then covers the remaining approved costs, up to the policy’s stated limits. For example, if a home sustains $10,000 in covered damage and the all perils deductible is $1,000, the policyholder would pay the first $1,000, and the insurer would pay the remaining $9,000.
Comparing Deductible Structures
The all perils deductible differs from deductibles associated with “named perils” coverage. Named perils policies only provide coverage for risks explicitly listed in the policy. A deductible would only apply to those specifically named events. In contrast, an all perils deductible applies to any cause of loss not specifically excluded, offering broader protection. While all perils deductibles are generally fixed dollar amounts, some policies may include percentage-based deductibles. These are particularly common for events like wind or hail damage, calculated as a percentage of the insured property’s value. These percentage deductibles are often separate from the standard all perils deductible and are much higher.
What Influences Deductible Amounts
Several factors determine the amount of an all perils deductible. Policyholders have the flexibility to select a higher or lower deductible when purchasing or renewing their insurance policy. The value of the insured property also plays a role, as do the insurer’s underwriting guidelines. Choosing a higher deductible can result in lower insurance premiums, as the policyholder assumes a greater portion of the financial risk in the event of a claim. Conversely, a lower deductible leads to higher premiums because the insurer is responsible for a larger share of potential losses.