The insurer, by the use of a deductible, causes the contractor to pay a part of every loss.
Deductibles also reduce the cost of insurance to the contractor.
There are reams of material in insurance literature supposedly enabling one to determine scientifically the correct deductible amount. In practice, that determination is a matter of ascertaining the size of the financial impact, in the form of a deductible, that a contracting firm can sustain during a given period of time. It is also a matter of determining the most economical deductible to take, given the reduction in premium the insurer will grant when the deductible is used. A large assumed loss through a large deductible in the downside of the construction business cycle can be devastating to a contractor who is thinly capitalized and whose job inventory is at an all-time low. Answers to these questions only establish overall guidelines in the matter of determining deductible amounts.