Glossary · Insurance & Risk
Deductible.
The portion of a covered claim the insured pays before insurance pays; higher deductibles lower the premium but increase out-of-pocket exposure.
What it is
A deductible is the amount the insured must pay out of pocket before insurance kicks in on a covered claim. It is applied per claim (most common in trucking) or per policy period (rare). Standard ranges by coverage: physical damage $1,000–$10,000, motor truck cargo $1,000–$5,000, primary liability typically zero (BI/PD pays from dollar one). The deductible is subtracted from the claim payment, not paid separately to the insurer, and is usually netted against the body shop or replacement-equipment invoice.
Higher deductible equals lower premium but more out-of-pocket exposure on each claim. Self-insured retention (SIR) is a related concept for larger fleets — an SIR functions as a deductible on liability claims and is common above 20-truck operations. Aggregate deductible exposure across multiple coverages can create surprising cash burdens after a single accident: one collision can trigger physical damage, MTC, and possibly GL deductibles simultaneously, totaling $10,000–$20,000 cash out before insurance pays a dollar. That stack is the number that matters for cash planning.
Why it matters for trucking finance
Deductible choice is a real cash-flow trade-off. Saving $400 on annual premium with a higher deductible means losing $4,000 out of pocket on a fender-bender — the math only works if you can absorb that worst case without disrupting the operation.
For operators with thin working capital, low deductibles are often the right call despite the premium increase. Total deductible exposure should be matched against working capital — if you can't cover the worst-case sum, deductibles are too high. The right deductible protects working capital, not the one that minimizes premium.
Related terms
- Physical Damage — Coverage on the carrier's own truck and trailer against collision, theft, fire, vandalism, and other damage; typically required by equipment lenders.
- Motor Truck Cargo (MTC) — Insurance coverage protecting the freight in transit; required by most brokers and shippers, typically $100K minimum for general freight.
- Working Capital — Short-term unsecured business funding used to bridge cash-flow gaps, cover operating expenses, or capitalize on opportunities; APR typically 14–34%.
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