If a client approaches your agency to provide them with motorcycle insurance, then it’s up to you to explain to them all of the terms and conditions of their policy. Motorcycle insurance provides significant protection if drivers invest in full coverage. However, coverage will have its own limits attached, and insured bikers will often still bear certain financial responsibilities when accidents occur.
One of the ways that insurers require bikers to bear a certain financial burden for their losses is by instituting deductibles on their policy. This deductible often obligates bikers to pay a portion of their damage costs on their own. Most policies contain several deductibles. Still, deductibles won’t apply to every type of claim.
Therefore, as you help a client choose their policy, you’ll need to be sure to ask them about their preferences for deductibles. In many cases, clients have substantial control over their deductible options, and this can even impact their premium cost. It’s always a benefit to them to know how deductibles work and how they can help them save money.
What is a deductible?
Insurers use deductibles to reduce some of their cost risk that they assume by issuing a policy. When a client buys a motorcycle policy, the insurer agrees to pay for damage claims on the client’s behalf. Therefore, the client is a cost risk to the insurer. However, insurers like to control that risk through mechanisms like deductibles.
By instituting a deductible, and insurer agrees only to pay if the value of a claim exceeds the deductible cost. Therefore, the policyholder must pay for all losses up to this value on their own.
For example, motorcycle policies might include a $1,000 collision deductible. Therefore, the insured biker agrees to pay for the first $1,000 worth of wreck damage, and their insurer will cover the rest.
So, if the bike has $3,000 in damage, then the policyholder pays $1,000 towards the repairs and the insurer pays $2,000. However, if the bike only has $600 in collision damage, then the policy will not pay at all. The $600 repair bill is less than the $1,000 deductible.
What parts of a policy include deductibles?
Deductibles do not apply equally to all claims made on a motorcycle policy. Often, different sections of coverage will have different deductibles, and some portions of the policy won’t have them at all.
For example, liability claims often do not have any deductibles attached. Liability claims pay third parties who sustain injuries or property damage following motorcycle wrecks that are your fault. Because these claims go to other parties, rather than the insured biker, a deductible will not apply.
However, physical damage insurance will usually include a deductible. If you have both collision and comprehensive coverage, then both components will likely have their own deductibles. Usually, the deductible is the same value for both types of coverage on most policies. Therefore, when the insured needs to have vehicle repairs made because of a covered accident, they will pay their deductible.
Why do deductibles impact premiums?
Because deductibles reflect monetary value, they also equal risk. In insurance terms, risk is the primary factor that insurers use to determine a policyholder’s premium costs.
Those with higher risks are likely to pay more for their coverage than those with lower risks because they are more likely to cost the insurer more money. After all, the more likely someone is to make a claim, then the more they are likely to cost the insurer in the end. As a result, the insurer will likely have to charge them a higher premium.
Suppose that a client chooses a $500 policy deductible as opposed to one worth $1,500. That’s a $1,000 difference that pushes more money onto the insurer to pay in the event of a claim. Therefore, someone with a $500 deductible could cost the insurer more. The insurer will likely have to charge them more as a result.
Therefore, policyholders who choose higher deductibles are more likely to pay a more affordable premium overall. This is not an unrestricted benefit, however.
Should clients carry higher premiums?
If a biker chooses a high physical damage deductible, then they take on more of a claim’s costs themselves. After all, with a $500 deductible they will only pay for the first $500 of their damage costs while with a $1,500 deductible, they will have to pay a lot more on their own.
A higher deductible might save the client money on their premium. However, it just means a higher personal expense in the event of a claim. Plus, if a wreck totals a bike, and the bike is worth less than the deductible value, then the biker’s policy will not compensate them at all. Even if it is, the insurer will still subtract the deductible before paying the policyholder the final settlement.
Therefore, only advise policyholders to include a deductible on their policy that they can afford to pay on their own. Though they might have questions on how this will affect their costs, the good news is that they can often still qualify for multiple discounts and other savings opportunities over time.
Also Read: Dispelling Client Myths About Their Motorcycle Insurance