Occasionally a policy surfaces that reframes what the word coverage means. Recently a homeowner produced a policy carrying a $100,000 deductible, not on a specific peril, not on a percentage basis, but across the board. On most conceivable losses, that policy pays nothing. A $60,000 water loss, a $80,000 fire in a single wing, a theft of jewelry and contents: all fall entirely within the deductible, all borne by the insured. The policy responds only to catastrophes approaching total loss. The homeowner’s follow-up question revealed the deeper confusion: if my contents limit is $100,000, does that mean I have no contents coverage at all?
The question conflates two numbers that do opposite work. The limit is the ceiling of what the insurer will pay. The deductible is the floor of what the insured must absorb first. A $100,000 contents limit with a $100,000 deductible is not zero coverage in theory: a $200,000 contents loss would still produce a $100,000 recovery. But as a practical matter, the pairing means the policyholder is self-insuring every ordinary loss and reserving the policy for ruin.
There is a version of this structure that is rational. Very high deductibles, deliberately chosen, trade premium for retained risk; a household with substantial liquidity may rationally self-insure frequency losses and buy only catastrophe protection. Some lenders and carriers even offer such programs knowingly. What distinguishes a strategy from a trap is intent and awareness. The homeowner in this case had neither chosen the structure knowingly nor understood it afterward.
The generalizable lesson is that a deductible is not boilerplate. It is the boundary between the risk you keep and the risk you transfer, and it deserves the same attention as the premium, because it defines the premium’s meaning. A cheap policy with a $100,000 deductible and an expensive policy with a $5,000 deductible are not the same product at different prices; they are different products. Every household should be able to answer, without opening the policy, three questions: what is my deductible, does it differ by peril, and does my contents limit exceed it by enough to matter. If any answer is unknown, the coverage is unknown, and unknown coverage is not yet coverage at all.
This article is adapted from Nathan’s original LinkedIn post, published April 29, 2025. Read the original post on LinkedIn →