XYZ Trucking Company has a Commercial Property policy with a franchise deductible of $100,000. A severe storm causes $965,000 in covered damage to their property. Considering the type of deductible, how much of this loss will XYZ Trucking Company be responsible for paying out-of-pocket?

Rationale

XYZ Trucking Company will be responsible for paying out-of-pocket $0.

In this scenario, the franchise deductible of $100,000 applies only when the total loss exceeds that amount. Since the total damage of $965,000 surpasses the deductible, the insurance will cover the entire loss, leaving the company with no out-of-pocket expense.

A ($865,000) YOUR ANSWER

This choice incorrectly suggests that the company must pay the deductible amount against the total loss. However, since the loss exceeds the deductible, the insurance policy covers the full amount of the damage, resulting in no out-of-pocket costs for XYZ Trucking Company.

B ($0) CORRECT

This is the correct choice as it reflects the fact that the total loss of $965,000 exceeds the deductible of $100,000. As a result, the insurance policy covers the entire amount of damage, leaving XYZ Trucking Company with no financial responsibility.

C ($100,000) YOUR ANSWER

This option implies that the company must pay the deductible amount. However, in this case, the total damage surpasses the deductible, meaning that the insurance will fully cover the loss, and the company does not incur any out-of-pocket costs.

D (The policy limit) YOUR ANSWER

This selection erroneously suggests that the company must pay up to the policy limit. The policy limit would apply if the losses were below the deductible, but since the damages exceed the deductible, the insurance covers the entire loss, making this option incorrect.

Conclusion

In summary, when faced with a loss that exceeds a franchise deductible, the insured party is not responsible for any out-of-pocket expenses beyond the deductible amount. In this instance, XYZ Trucking Company incurs no costs, as their insurance policy covers the entirety of the damage amounting to $965,000, thereby illustrating how franchise deductibles work in practice.

XYZ Trucking Company has a Commercial Property policy with a franchise deductible of $100,000. A severe storm causes $965,000 in covered damage to their property. Considering the type of deductible, how much of this loss will XYZ Trucking Company be responsible for paying out-of-pocket?

XYZ Trucking Company will be responsible for paying out-of-pocket $0.

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