Why might a business choose to implement deductibles in their insurance policy?

Implementing deductibles in an insurance policy is primarily a strategy for managing risk and reducing premiums. When a business agrees to pay a certain amount out-of-pocket before the insurance coverage kicks in, it takes on a portion of the financial risk associated with a potential loss. This sharing of risk can lead to lower premium costs because insurers often reward businesses that are willing to take on some of that risk.

By incorporating a deductible, businesses can tailor their coverage to better suit their financial situation. A higher deductible typically results in lower premiums, making it more affordable, especially for businesses that are confident in their risk management practices and believe they may not need to file many claims. This approach encourages policyholders to make fewer, smaller claims, which can protect the insurer's resources and help maintain lower overall insurance costs.

In contrast, other options do not align with the fundamental reasons for using a deductible. For example, deductibles do not obscure total costs; they are a clear, defined line item in a policy. Additionally, they do not shift all liability to the insurer, as the deductible ensures the policyholder shares some of the costs. Finally, deductibles do not enhance coverage limits automatically; rather, they dictate how much the insured must pay before the insurer’s