How do deductibles work on apartment building insurance?

A deductible is the portion of a covered loss that the apartment owner pays before the insurance policy begins to pay. For example, if you have a $10,000 deductible and file a property claim for $75,000 in damage, the insurer pays $65,000 and you pay the first $10,000.

Apartment building insurance policies may have several types of deductibles. A flat dollar deductible is a fixed amount (such as $5,000 or $10,000) that applies per claim. A percentage deductible is calculated as a percentage of the total insured value and is common for wind, hail, and earthquake coverage (for example, a 2% wind deductible on a $5,000,000 building means a $100,000 deductible for wind claims). Some policies use an aggregate deductible, where the deductible applies to total claims during the policy year rather than per claim. The ISO Commercial Lines Manual establishes standard optional deductible structures and corresponding premium credits for commercial property policies.

Choosing the right deductible involves balancing premium savings against out-of-pocket risk. Higher deductibles reduce annual premiums, which can be meaningful for large properties. However, the owner must be able to absorb the deductible amount when a claim occurs. Many apartment owners choose deductibles in the $5,000 to $25,000 range for general property claims, with higher percentage-based deductibles for catastrophic perils like wind and earthquake. Fannie Mae's Multifamily Selling and Servicing Guide (Part III, Chapter 6) caps allowable deductibles on DUS-financed properties, generally limiting the property deductible to no more than $25,000 or 5% of the insured value for windstorm (whichever the lender specifies), to ensure adequate loss recovery.