Why Deductible Structures Can Make or Break a Claim 

In commercial real estate (CRE) lending, securing the necessary insurance coverage is critical to meeting the lender’s requirements, mitigating vulnerabilities and maintaining the health of the loan over time. However, when approaching the market for insurance, the focus is often on coverage limits —but the deductible is just as important.

A poorly chosen deductible can negatively impact a borrower’s budget when a claim is filed or cause costly premium overpayments, which can increase the risk of defaulting on the loan. This makes reviewing insurance deductibles a crucial part of thorough insurance analysis for lenders and investment managers.

In this article, we’ll explore the value of carefully reviewing deductible structures and how lenders can protect their financial interests throughout the entire loan transaction lifecycle.

FAQs about Insurance Deductible Structures for CRE Lending

A critical component of a robust commercial real estate insurance strategy is securing comprehensive insurance coverage with adequate deductible structures. Learn more about how deductible structures play a key role in driving deals forward.

What Is a Deductible Structure?

A deductible structure defines how and when the insured shares in the cost of a loss. It goes beyond just the dollar amount—it includes how the deductible is calculated, whether it's applied per occurrence or per location, and how it scales with property value or portfolio size.

These details can drastically affect both claim outcomes and overall policy performance. A poorly aligned structure can expose borrowers to unexpected financial strain or lead to coverage gaps, while a well-matched structure supports both affordability and resilience. 

Why Does Carefully Reviewing Insurance Deductible Structures Matter?  

In today’s complex lending environment, lenders must complete a thorough insurance analysis to identify risks and close coverage gaps with the right insurance solutions at the right price points. Reviewing insurance deductible structures allows lenders to:

• Carefully Consider the Tradeoff: Higher deductibles often reduce premiums but increase the borrower’s burden in a loss. Low deductibles may be easier at claim time but more expensive upfront. An experienced insurance advisor can help commercial real estate lenders weigh these factors and ensure that the borrower’s insurance policy has a deductible structure that aligns with the lender’s requirements, while fitting within the borrower’s budget.
• Complete Proactive Cash Flow Planning: Borrowers must be prepared to pay the deductible amount immediately after a loss. If they can’t, the claim and the property recovery may be delayed.
• Comply with Loan Terms: Some lenders require certain deductible caps to ensure financial responsibility in case of a claim.

Even with strong risk management strategies in place, a loss can still occur. Consider an example where a new apartment build faces unexpected damage from a catastrophic weather event. If the borrower is faced with a high deductible that they can’t afford, this may jeopardize the collateral and the lender’s security, making it increasingly important that lenders balance comprehensive coverage with a well-matched deductible structure.

What are the Benefits of Thorough Deductible Structure Analysis for Lenders and Investment Managers?

Closely reviewing deductible structures when approaching the market for coverage earns lenders and investment managers the following key benefits:

• Claim Readiness: Ensures borrowers can realistically afford the deductible when needed.
• Policy Optimization: Helps balance protection, premium cost and financial risk.
• Avoid Defaults: Prevent insurance-related payment defaults due to unaffordable deductibles.
• Improve Financial Forecasts: Make more accurate projections based on likely out-of-pocket expenses.

It can be challenging for lenders and borrowers to navigate the changing insurance market and various deductible structures alone. This is where working with Harbor Group Consulting, the premier insurance advisor for CRE lenders, can help.

Harbor Group Consulting: Your Partner in Structuring Well-Matched Deductible Structures

At Harbor Group Consulting, we evaluate more than just the policy limits—we closely analyze insurance details that impact performance, budget and compliance to set your business and loans up for success. With extensive experience in navigating lenders through the loan transaction lifecycle, we understand the pivotal role deductibles play in managing risk and ensuring financial stability. During our pre-close insurance reviews, we evaluate the deductible amounts in each policy to ensure they align with your risk management strategies and financial goals. 

Reach out to a representative from Harbor Group Consulting today to ensure your deductible strategy supports your deal—before it’s tested by a loss.