Which deductible type activates only after a loss exceeds a certain threshold?

The franchise deductible is a unique type of deductible that becomes applicable only after the amount of a loss exceeds a specified threshold. In practice, this means that if the loss falls below this threshold, the insurer is not liable to make any payment. However, once the loss exceeds this predetermined amount, the insurance coverage kicks in, and the policyholder receives the full amount of the loss, minus the deductible itself. This structure is particularly common in certain types of insurance, such as property insurance, where it can provide a clear incentive for policyholders to minimize smaller claims.

In contrast, fixed deductibles, percent deductibles, and aggregate deductibles operate under different mechanisms. A fixed deductible is a straightforward dollar amount deducted from any claim, regardless of the loss size. A percent deductible is often a percentage of the loss amount or total insured value which is deducted from larger claims. Aggregate deductibles encompass multiple claims over a specified period and require policyholders to absorb losses up to a certain total before the insurer pays. Thus, the distinctive function of the franchise deductible in relation to loss thresholds highlights its unique position in the deductible landscape.