What type of deductible applies when policyholders decide how much risk they are willing to take?

A fixed deductible is a predetermined dollar amount that a policyholder agrees to pay out-of-pocket before the insurance company covers any remaining costs for a claim. In this case, policyholders choose the specific dollar amount of risk they are willing to retain, which allows them to have some control over their insurance expenses. The fixed nature of this deductible means that it remains constant regardless of the total amount of the claim, making it a straightforward option for policyholders to understand and manage.

On the other hand, percentage deductibles are based on a percentage of the total claim amount, which can lead to varying out-of-pocket costs depending on the size of the claim. Franchise deductibles are designed to cover a certain threshold—if the claim exceeds this threshold, the insurer pays for the entire amount but nothing if it falls below. Variable deductibles allow the policyholder to select from a range of deductible amounts, with the trade-off affecting the premium. This option can introduce complexity in decision-making, rather than offering the simplicity that a fixed deductible provides.