How a Deductible Buyback Policy Can Decrease Long-Term Costs

With rising inflation and increased rates from the Fed, the property and casualty industry has not been immune to this difficult market, causing insurance carriers to adjust the way they write their policies — usually not in favor of the insured. These insured organizations and individuals experience a financial ripple effect of rising costs passed along through increased premiums and inflated deductibles. This has left many scrambling to determine how to afford these higher costs. At GuideStone^®, we are assisting our insureds by finding a solution for increased deductibles by providing them with an option to purchase a deductible buyback policy.

A deductible buyback policy is a separate policy that an insured may purchase to reduce their first-dollar losses by transferring the risk to another party in the event a claim occurs. This policy allows the insured to reduce their deductible by paying a premium. This means the insured would pay a more affordable deductible overall, and the deductible buyback carrier would pay the agreed-upon difference between the original policy deductible and the amount the insured paid. The main insurance carrier receives the full deductible amount through the two separate payments. Then it pays for any damages above the deductible, up to the stated limits of the policy.

• The wind/hail deductible on the main policy is 2% of the building and contents limit. (The building and contents limit is $5,000,000. The deductible would be $100,000.)
• The insured decides to purchase a deductible buyback policy that reduces the deductible to $10,000 (a difference of $90,000) for a quoted annual cost.
• If the insured files a claim, they will pay the $10,000 deductible they agreed upon with the deductible buyback carrier, and the deductible buyback carrier will pay the remaining $90,000 to the main insurance carrier. The main insurance carrier would then pay any amount above the deductible up to the policy limits.
• If multiple claims occur during the policy period, this same scenario will occur again.