What Is a Deductible in Small Business Insurance? (Definition, Examples & How It Works)

What Is a Business Insurance Deductible?

A deductible is your share of the cost for damage or loss when you file a claim with your insurance provider. 

For example, suppose your commercial property incurs water damage, but the damage is limited, and it’s less than your policy’s $1,000 deductible. In that case, it might not make sense to file a claim if the value of the damage is less than the deductible.

A deductible can help keep your premium low. If you want a lower annual insurance premium, select a higher deductible. 

However, remember that if you opt for a higher deductible to reduce your premium, you’ll need the cash to pay it when making a claim.

Types of Deductibles in Small Business Insurance

Just as there are different types of business insurance products, there are different types of deductibles. So, while aiming your insurance premium as low as possible makes sense, having a low deductible and paying a slightly higher premium may be worthwhile, depending on your coverage needs.

Deductibles vary based on the type of insurance. Here are a few common ones:

Standard deductibles: Fixed-dollar amounts applied to each claim filed.

For example, a commercial property policy with a $2 million coverage limit may have a $1,000 deductible.

Percentage deductibles: Calculated as a percentage of the insured value of the property.

For example, if your commercial property is insured for $500,000 and the policy has a 2% deductible, your claim payment would be reduced by $10,000.

Split deductibles: Different deductible amounts depending on the type of claim.

For instance, a policy might split by having one deductible for commercial property damage claims and a separate deductible for third-party liability claims.

Waiting period deductibles: Common in business interruption insurance, where coverage begins after a set time period.

In other words, after paying your deductible, there’s a brief waiting period before your insurance kicks in, meaning the policyholder is responsible for their expenses during that time.

Per occurrence deductibles: Apply separately to each individual incident or claim.

For example, with general liability insurance, a deductible might apply to each separate claim for third-party bodily injury or third-party property damage.

A policy’s terms stipulate there’s no deductible if your claim is above a certain amount. That information is usually found on the declarations page of your policy.

Which Small Business Insurance Policies Have Deductibles?

Most types of small business insurance have deductibles, including:

• General liability insurance 

• Commercial property insurance

• Business interruption insurance

• Commercial auto insurance
• Professional liability insurance (errors and omissions insurance)

• Cyber liability insurance

In many liability insurance policies, deductibles may not apply at all, or may apply differently than property coverage. 

This distinction is important for small business owners concerned about lawsuits versus physical damage. A Zensurance broker can answer your questions about insurance deductibles.

How a Small Business Insurance Deductible Works (With Examples)

If the deductible is a set amount, it will be deducted from a claim payment. For example, if you experience a fire that inflicts $10,000 of property damage, and your deductible is $500, your insurance provider would cut you a cheque for $9,500. 

If you want to reduce the deductible so your out-of-pocket costs are lower at the time of the claim, you need to be prepared to pay a higher annual premium.

Deductibles generally apply to property damage but not liability. So, for instance, if you lose inventory in a fire, your claim to recoup the value of that lost inventory is subject to a deductible.

How to Choose the Right Deductible for Your Small Business

Choosing an insurance deductible for your small business should reflect the type of business you’re running and the risks you face. 

When choosing a business insurance policy deductible, stay focused on what you are prepared to pay out of pocket for any one loss. 

The deductible is your monetary responsibility, and aligning a deductible with your financial position as a business is the most recommended approach for balancing costs now and in the future. Doing so will ensure you are not caught off-guard by the size of your deductible when filing a claim.

Another way to look at it is that every claim must be at least double the size of the deductible to justify submitting that loss.

Why Are Business Insurance Deductibles Necessary?

Deductibles exist to balance risk between insurers and small business owners, ensuring insurance is used for meaningful losses and not everyday expenses. 

There are other reasons why deductibles are necessary, including:

Deductibles mitigate the behavioural risk of moral hazards

Deductibles encourage policyholders to take precautions and only file claims with significant losses. They help ensure policyholders take active roles in safeguarding their properties and minimizing risks, thereby avoiding filing claims.

Deductibles cushion insurance providers against financial stress

Whether caused by a catastrophic event such as a wildfire or tornado or an accumulation of small losses, without a deductible, an insurer would be on the hook to cover the cost of every minor claim. That could place an insurance provider in a precarious financial position.

Deductibles keep insurance premiums affordable

Deductibles help insurers control their exposure to losses. By doing so, it allows them to offer more affordable premiums to policyholders.

Frequently Asked Questions About Small Business Insurance Deductibles in Canada

Do all small business insurance policies have deductibles?

No, not all small business insurance policies have deductibles. Deductibles most commonly apply to property-related coverage, such as commercial property insurance, equipment insurance, and business interruption insurance.

Many liability insurance policies, including general liability insurance, often have no deductible at all, meaning the insurer may cover legal defence costs and settlements from the first dollar. Whether a deductible applies depends on the type of coverage, the insurer, and the policy terms.

Are deductibles tax-deductible for businesses in Canada?

Yes, in most cases, insurance deductibles are tax-deductible business expenses in Canada. When a deductible is paid as part of an insurance claim, it is generally considered a legitimate business expense and may be deducted from business income for tax purposes.

However, tax can vary based on your business structure and the nature of the claim, so it’s always best to confirm with a qualified accountant or tax professional.

Can I change my deductible after purchasing a policy?

Sometimes but not always. In many cases, you can request a deductible change at policy renewal, which may affect your premium. Changing a deductible mid-policy term is usually more limited and may require insurer approval.

If you want to adjust your deductible, speak with your insurance broker before your renewal date to explore your options and understand how the change could impact your coverage and costs.

Is a higher deductible always better for small businesses?

No. A higher deductible is not always better for small businesses. While choosing a higher deductible can lower your insurance premium, it also means higher out-of-pocket costs when you file a claim.

For many small businesses, the best deductible is one that balances affordable premiums with an amount you could comfortably pay without disrupting cash flow.

The right deductible depends on your risk tolerance, financial stability, and the type of losses you’re most likely to face.

Protect What You’ve Built Without Overpaying: Get a Free Insurance Quote

You’ve put time, money, and heart into building your business. Your small business insurance should do the same job of protecting it without draining your cash flow. 

Choosing the right deductible is about balance, and getting it right can mean the difference between confidence and costly surprises.

A licensed broker can help small business owners compare insurance options, understand deductibles, and find and customize policies that balance protection with affordability.

Complete our online application in under five minutes for a free, no-obligation insurance quote.

Let us help find protection that fits your business and your budget, with no guesswork and no pressure.

– Updated February 11, 2026.

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