Deductibles Demystified: How Schools Can Strategically Choose the Right Property Deductible

For schools, property insurance deductibles are more than just a number on a policy. They represent your school’s immediate financial responsibility when a covered loss occurs, directly influencing your annual insurance expense. In today’s shifting insurance landscape, making an informed decision about your property deductible is a strategic move that can help manage your budget and protect your resources.

So, how can schools thoughtfully approach this decision? Here’s a way to think through it.

What Is a Property Deductible, Really?

Simply put, a deductible is the amount your school agrees to pay out of pocket before your insurance coverage begins for a property claim. This arrangement is how risk is shared between your school and the insurance provider. Generally, if you agree to take on a larger portion of this initial risk (a higher deductible), your annual premium tends to be lower. Conversely, a lower deductible typically means a higher annual premium.

Deductibles often appear in two main forms:

• Dollar Amount: This is a fixed sum, like $5,000 or $10,000. If your claim is for $50,000 and your deductible is $10,000, the insurance company would pay $40,000.
• Percentage Amount: This is calculated as a percentage of your property’s insured value. For example, if your building is insured for $10 million and has a 2% deductible, you would be responsible for $200,000 of a covered loss. These percentage deductibles are increasingly common, especially for wind and hail events, even in areas not historically prone to severe weather.

Factors to Consider When Selecting Your Deductible

Choosing the right deductible isn’t a one-size-fits-all situation. It requires a careful look at your school’s unique financial situation and its approach to risk.

First, consider your school’s financial capacity. What amount can your school comfortably pay in the event of an unexpected property claim without disrupting your daily operations or educational programs? A lower deductible means predictable, higher premium payments throughout the year. A higher deductible means lower premiums but requires the ability to cover a larger lump sum if a loss occurs. Align your choice with your budget planning.

Second, consider your claims history. If your school has had few or no claims over a long period, taking on a higher deductible might be a sensible approach to reduce ongoing premium costs.

In addition, the age, construction type, and location of your buildings can influence the likelihood and severity of potential losses. For example, older buildings might face different risks than new construction. Your geographical location’s susceptibility to specific weather events (like high winds, hail, or freezing temperatures) should also factor into your assessment, especially given the rise of specific deductibles for these perils. If you believe that facing a claim is unlikely, higher deductibles may be a better option.

Specific Considerations for Wind and Hail Deductibles

As mentioned earlier, wind and hail deductibles are becoming more widespread. These can sometimes be percentage-based and apply separately from your general property deductible. Confirm which kind your deductible is and if it applies per building, per location, or per occurrence. This detail can significantly impact your financial responsibility if multiple buildings are affected by a single weather event.

Working with Your Agent

Navigating deductible choices is a discussion best had with your insurance agent. A knowledgeable agent will help educate you, provide market context, and help you assess your school’s financial capabilities and risk tolerance to arrive at a deductible strategy that aligns with your operational goals.

Choosing the right property deductible is a thoughtful process that balances ongoing costs with potential future out-of-pocket expenses. By understanding the types of deductibles, evaluating your school’s financial position, and having open conversations with your agent, you can make a decision that supports your school’s financial health and mission.

Watch a video on the subject with insurance advisor Kyle Butler here.