Everyone who has dealt with insurance has seen the “Franchise” clause in their contract. When insurers offer people different insurance options, many do not even think about such questions as: what is a franchise? How does its size affect the settlement of an accident? Which franchise policy is more profitable? etc
What does deductible mean in all insurances without exception?
A franchise is an exact (in UAH) or relative (in%) amount that the insurance company does not pay to the victim according to the insurance contract.
Every insurance company strives to ensure that more and more policies are sold with a franchise. After all, it is obvious that the insurance company will not spend its resources on small insured events (which fall under the franchise). But for this, insurers are ready to provide significant discounts on insurance. For example, in OSAGO auto insurance, savings when buying an insurance policy can be from 10% to 20%, and in some cases even more.
But, besides, the policyholder becomes more responsible when his contract contains a franchise, because no one wants to pay money out of his own pocket once again.
What are the franchise sizes?
Franchise can be either absolute or relative. What is the difference?
If the franchise agreement is specified in UAH (for example, UAH 1,000), then for any insurance payment, the amount will decrease exactly by these UAH 1,000. Such a franchise is often used in auto insurance, travel insurance, etc.
If the franchise is specified in the contract as a percentage, then the absolute amount of the franchise will be calculated from the sum insured. For example, if a franchise of 5% is indicated in the CASCO contract, then for each insured event, the payment will be calculated as “the amount of damage - 5% (of the sum insured, and not of the amount of damage) = the total amount payable”. Accordingly, the larger the franchise, the more the insurance company saves with an equal sum insured.
The most common franchise amounts in OSAGO (avtocivilka): 0 UAH, 500 UAH, 1000 UAH, 2000 UAH, 2600 UAH and 3200 UAH.
Most common in travel insurance (0$, 50$, 100$, 150$ and more)
Franchise in CASCO in most cases from 0% to 15%.
What types of franchises exist in insurance?
Franchise in all types of insurance can be both conditional and unconditional. Now let's look at the difference between these franchises.
A conditional franchise implies that the insurance company does not pay for an insured event if the amount of loss does not exceed the franchise. But if the damage exceeded the size of the conditional franchise, then the insurance company pays in full. For example, if the conditional franchise is UAH 2,000, then in case of damage of UAH 1,500, no payment will be made, but in case of damage in the amount of UAH 2,500, the payment will be in full (UAH 2,500).
The unconditional franchise is more common in car insurance and travel insurance. This franchise means that for any damage, the insurance company will pay the full amount minus the franchise.
Buy insurance with or without franchise?
Buying expensive insurance with a “zero” deductible (franchise 0 UAH or %) or cheaper, but with a franchise, of course, is up to you.
But you need to understand that the franchise is harmless only when buying insurance, and as soon as an insured event occurs, the costs will increase significantly. For example, in auto insurance in case of an accident, the insurance company can pay up to 5 cars in 1 case. But the franchise extends to each of them. If you bought insurance with a deductible of 2000 UAH and saved, for example, 200-300 UAH, then if 5 cars are damaged, you will have to pay 10,000 UAH to the victims. It is up to you to draw conclusions, because insurance is a theory of probability, nothing may happen, but in any case it is better to think about any development of events in order to be as prepared as possible at the moment of trouble.