A franchise is one of the tools used in insurance. It is used by insurance agents in order to draw the attention of customers to more attractive conditions and a low price policy. The franchise is especially relevant in the field of compulsory insurance, for example, in car insurance. A contingent deductible in insurance is one of the varieties of this tool. Today, there are two types: conditional and unconditional.
What is a contingent franchise
First of all, the franchise itself should be defined. As an insurance tool, it received official status in Russian legislation back in 2014, when amendments were made to the text of the insurance law. A deductible is a part of the loss (damage) resulting from the occurrence of an insured event that is not paid by the insurance company. Payments occur only if the amount of loss exceeds the deductible. The extent to which, when and how the money will be paid depends on the type of insurance contract and the conditions specified in this contract.
At first glance, it seems that it is unprofitable for the insured, but in reality it may be more profitable than buying a regular policy. A franchise policy is much cheaper, especially with minor accidents, when the damage is insignificant (a couple of light scratches). Such an insurance policy makes it possible to solve the problem without involving specialists from the insurance company, which means saving time and money on paperwork.
Simple Conditional Franchise
Payments under a simple contingent deductible are calculated as follows: if the loss is less than the cost of the deductible, the insured is responsible for the loss from the occurrence of the insured event, if more, the full amount of losses is paid by the insurance company, but within the insurance amount.
Calculation Example
The car was issued insurance with a simple contingent deductible. Its size is 35 thousand rubles. As a result of the insured event, a loss was received (the amount of damage is 25 thousand rubles). In accordance with the terms of the contract, the insurance company does not pay the loss to the property. If it was not 25 thousand rubles, but 40 thousand rubles, then the insurance company would pay the full amount of the loss - 40 thousand rubles.
What is the difference between a contingent and unconditional franchise
The difference between the conditional and unconditional deductible in insurance is that payments under the unconditional deductible are always made using the same formula. By default, if no special conditions are specified in the insurance contract, then such a deductible is considered unconditional. With her, the size of the payment is equal to the difference between the cost of the franchise and the amount of damage. Naturally, if the damage is less than its value, then there can be no talk of any insurance payments.
Calculation Example
Accident has occurred. The amount of damage amounted to 75 thousand rubles, the size of the unconditional franchise - 50 thousand rubles. The insurance company will have to pay only 25 thousand rubles (75-50). An unconditional deductible is considered the most profitable for insurance companies, as it enables them to transfer part of the cost of insurance payments from the wallet of the insured person.
Temporary Franchise
Such a contingent deductible in insurance is a condition under which it is relevant for a certain period of time. For example, the first 3 months from the date of registration of the policy. During this time, it is valid, and the remaining 9 months apply the usual insurance regime, that is, without a deductible.
Dynamic franchise
A dynamic contingent deductible in insurance is a deductible whose size varies depending on the number of insured events per year. Most often it is expressed as a percentage. For example, at the first accident, it is 10%, at the second - 30%, at the third - 50%. However, three or more accidents per year are very rare, although it all depends on the nature of driving. If the driver loves speed, then the purchase of such a policy will be unprofitable for him.
Calculation Example
When buying a CTP policy, a dynamic franchise was issued. In the event of participation in an accident, the driver paid 5% of the cost of damage, with a repeated accident the deductible increased to 35%. If the driver got into an accident for the third time in a year, he was equal to 80% of the amount of damage.
The insured car got into an accident, the amount of loss amounted to 70 thousand rubles. Franchise size in rubles: 70,000 * 0.05 = 3,500 rubles. The insurance company paid 66.5 thousand rubles. During the year, the car got into an accident again. Losses - 100 thousand rubles. In accordance with the terms of the contract, the insurance company will pay only 65 thousand rubles, the remaining 35 thousand rubles necessary for auto repair must be reimbursed by the insured.
High deductible
Such a deductible is applied in property insurance contracts, which are very expensive. For example, antiques, expensive cars, luxury real estate. Upon the occurrence of an insured event, the policyholder first compensates for the damage with his own means, and then, having submitted documents confirming that the case is an insurance, he receives payments. Damage can be compensated in full or in part, paid - immediately or in parts (it all depends on the terms of the contract).
Calculation Example
As a result of the insured event, damage in the amount of 1 million rubles was received. The value of the high contingent deductible is 10%. The owner of the affected property incurred all expenses for the liquidation of the damage at his own expense. Under the terms of the contract, he must be paid 90% of the amount of damage within six months in installments. Payments will be made in the amount of 150 thousand rubles per month. 100 thousand rubles is the size of the franchise (10%). According to the terms of the contract. 900 thousand rubles - this is the amount of insurance payment. Since under the terms of the contract the insurer must pay the entire amount in installments, the monthly payment will amount to 150 thousand rubles.
Pros and Cons of a Franchise for the Insured
At first glance, it might seem that the insured is not profitable to use a deductible in the insurance contract. He is offered a policy with "truncated" functionality. So, in the event of a minor accident or minor damage, you will have to pay for repairs from your own pocket. The first thought of any client: all the benefits go to insurance companies, which thus evade full payments. In fact this is not true. A contingent deductible in insurance is beneficial, but only to those who are responsible for the insured property. For example, tidy drivers will be a plus, as they will be able to purchase a comprehensive insurance policy at a lower price than if they had not used it.
An insurance contract with a franchise is also beneficial for those who for some reason rarely use a personal car. Since car insurance is mandatory under Russian law, such a policy can bring significant savings. At the same time, even in the event of an accident, it will be easier and cheaper to make inexpensive repairs than to overpay for several years for unnecessary services. That is, you pay extra money for an expensive policy if the probability of getting into an emergency is low.
Who pays and how
Motorists are interested in questions not only about how much and when the insurance company will pay, but also about who will pay for the repair if one of the participants in the accident (or both at once) has an insurance policy with a deductible. How to get insurance in such a situation and what is its size? Insurance - regardless of whether one of the participants has a conditional or unconditional deductible - is paid by the insurance company, and then it collects the amount of loss from the culprit of the traffic accident, without figuring out whether the deductible has or not. Damage is fully refunded based on the size of the deductible.
How to get a franchise insurance policy
Many companies have special insurance programs that provide for an unconditional or conditional deductible. In insurance, this is not considered something unusual, although it appeared in Russia quite recently, and not all insurers today have been able to evaluate its advantages. It is used for both property insurance and personal insurance. When applying for a policy, you only need to clarify: a contract with a franchise or not. If with her, then what is she and on what terms is provided. Paperwork is almost the same as when buying a policy without it.
A franchise cannot be issued for property taken on credit. This applies to both real estate and the car. Before a loan is fully repaid, a franchise, whether conditional or unconditional, is considered illegal.
Do not confuse the deductible in insurance and the deductible in business. Despite the fact that they are pronounced and written the same way, they are completely different instruments. In business, it is the purchase of someone else’s brand or someone else’s system of organizing activities, production processes. What is it, a franchise in insurance, in simple words can be expressed as the amount of loss not covered by the insurance company. The policyholder himself pays for damage less than the size of the deductible.
Features of insurance in Russia
All insurance companies operating in Russia have one peculiarity: almost none of them will offer clients a policy with a conditional deductible. Perhaps this is due to the fact that the insurance market already suffers impressive losses and maneuvers on the verge of survival. Or maybe the problem is the imperfection of the legislation, because such a method of insurance appeared recently, and in general, the insurance market in Russia appeared a short period of time ago and there is no trust between insurance companies and policyholders.
The largest distribution in Russia has received an unconditional franchise. Almost all Russian insurance companies have unconditional deductible programs in their arsenal, so getting insurance is easy. The price of such a policy often falls below half its normal value. But this is nothing special to rejoice. The cheaper the policy and the larger the deductible, the more serious the burden on the policyholder’s wallet in the event of an insured event.
For example, the price of a comprehensive insurance policy is 100 thousand rubles. The company offers a franchise of 60%. Here the price of the policy will be only 40 thousand rubles. But such savings will be ruinous for the client in the event of an accident. If the amount of damage is less than 40 thousand rubles, the policyholder will have to make repairs at his own expense. If more, then the client will pay 60% of the total amount of loss. Therefore, the franchise is beneficial only for experienced, responsible drivers, as well as in those regions where the accident rate is low. In other cases, the deductible will be unprofitable for the insured.