Insurance Q&A: “What is a time deductible?”
Most of us are familiar with the concept of an insurance deductible.
Whether it’s the co-pay on a health insurance policy, the wind and hail deductible on a homeowner’s insurance policy, or the comprehensive and collision deductible on an auto policy, we are expected to share in the cost of our insured “losses.”
A deductible on an insurance policy has a few basic purposes. One is to keep us from filing “ticky-tack” insurance claims. If there was no deductible on our auto insurance policies, you might have individuals filing claims to fix rock chips in the paint on their cars.
Who cares? Anyone who pays an insurance premium. The costs to process the paperwork and pay an insurance adjuster would skyrocket if these types of claims were common…which would raise EVERYONE’S premiums.
Additionally, a deductible “forces” us to take more care of our property and ourselves. Without being forced to share in the costs of our “losses,” we might not maintain our property with such resolve.
For example, some people might not be in too big of a hurry to move their car into a garage during a hailstorm if they thought their insurance company would simply come out and fix the car for if it were damaged.
What Does Time Have to do With It?
A “time deductible” is a different animal. This type of deductible is not related to the sharing in the cost of physical property or our medical expenses (for tests and medication).
Rather, a time deductible typically comes into play when you are insuring the loss of income, which is not tangible property.
Specifically, your insurance policy may dictate that you wait a certain period of time, perhaps 72 hours, before they will begin to compensate you for your lost income.
So instead of reducing your claim payment by $1,000 (a typical auto deductible), you simply wait a few days before your payments kick in.
Time Deductible Examples
A few examples will be the best way to demonstrate the concept of a time deductible on an insurance policy.
1. Commercial General Liability Insurance – part of the CGL policy may be Business Income coverage. Imagine your company suffered a major fire. It may take you weeks or months to get back on track to earning revenue. Would your company survive three months without a single dollar of income?
Business Income coverage on a CGL policy would indemnify you for your lost income in the event you couldn’t continue your normal business operations due to a covered claim.
Your policy may have a time deductible that states you will not receive the “lost” income payments until after at least 72 of being out of business.
2. Landlord’s Insurance – perhaps you have a rental income property that cannot be occupied due to a covered loss…let’s say a fire. You certainly can’t expect your tenants to continue to pay rent while they’re not living in your dwelling.
Your insurance policy may cover “loss or rents,” also referred to as “fair rental value,” but you might have to wait out the time deductible prior to receiving claim payments for your financial loss.
Can I Avoid a Time Deductible?
Depending on the type of policy you have and what coverage you opt to add to your policy via endorsement, you may be able to choose no time deductible.
This means you may be reimbursed for loss of income immediately following your “loss.”
Similar to a “dollar amount” deductible, you can expect to see an increased premium for choosing a shorter time deductible or no deductible at all.
So be sure to weigh your options before making a decision.