What Is a Buyback Deductible?

A buyback deductible is an insurance contract provision that allows an insured party to pay a higher premium to reduce or eliminate the deductible that the insured would have to pay if a claim is made. A buyback deductible (also called a deductible buyback) can be an add-on to an existing insurance contract or may be purchased separately.

Understanding Buyback Deductibles

Buyback deductibles may be used by homeowners who purchase property insurance, especially if the deductible on a claim is set at a high amount. This type of provision limits the first-dollar losses that the insured may experience by reducing or eliminating the deductible.

Key Takeaways

  • A buyback deductible is an insurance contract provision.
  • If you have a buyback deductible, you agree to pay a higher premium. 
  • A buyback deductible can be purchased separately or added onto an existed insurance contract. 
  • Buyback deductibles are usually available for homeowners and commercial property policies, however, there are acceptions.

Insurers generally use deductibles to eliminate their exposure to the first-dollar losses associated with a claim. In order for the insurer to accept a lower deductible, it would have to be financially compensated another way.

In this case, the compensation is coming through a higher premium. This type of deductible is created through the payment of an incremental premium, which is used in lieu of the deductible that the insured would have to pay if a claim is made.

Homeowners may purchase property insurance with a buyback deductible provision to ensure protection against natural disasters.

Provisions may set a per-occurrence limit on the buyback deductible limit. Homeowners may purchase this type of coverage to reduce the financial risk associated with catastrophes, such as earthquakes, hurricanes, and heavy storms. Often, this type of coverage will have a higher limit than coverage for non-catastrophe perils.

Example of a Buyback Deductible

For example, a homeowner purchases property insurance with a buyback deductible provision providing per-occurrence deductible protection in the case of damage resulting from high winds. The provision will not cover any damage done to the house that is not the result of high winds, and thus, will lead to the standard policy deductible being used. If high winds are found to have caused the damage, the homeowner may see his or her deductible eliminated or reduced.

Types of Buyback Deductibles

While buyback deductibles are usually available for homeowners and commercial property policies, they can also work with other types of insurance. For example, some insurers may offer the opportunity to buy back a glass deductible, and others may sell a policy that reduces a policyholder's collision deductible if they wreck someone else's car.

Usually, a homeowner's buyback policies can be put together to cover anything that a conventional homeowner's policy would cover. There's no limit on what a buyback deductible can work, but the challenge might be to find an insurer that will agree to sell the product if it's not a regular part of their product line.