What characterizes a franchise deductible?

A franchise deductible is unique in that it stipulates that no payment will be made by the insurer until the total losses exceed a certain predetermined threshold. Once losses surpass this threshold, the insurer is responsible for covering the entire amount of the claim rather than just a portion below the deductible limit. This structure differs from other types of deductibles, as it does not result in gradual payouts leading up to the deductible amount. Instead, it essentially sets a minimum loss level that must be exceeded for the insurer to make any payments at all.

This characteristic can make franchise deductibles appealing in situations where covered risks might involve substantial claims, allowing policyholders to self-insure up to a certain level while ensuring that significant losses will be fully compensated by their insurance provider once that level is exceeded.