When is an insurer likely to apply a franchise?

An insurer is likely to apply a franchise during the claim process within a contract of insurance. A franchise operates as a threshold that must be exceeded for the insurer to pay a claim. Essentially, if a loss occurs that is less than the franchise amount, the insurer does not make any payment; however, if the loss exceeds the franchise, the insurer is liable to pay for the entire loss amount.

This mechanism aligns with the purpose of managing small claims and can help prevent minor losses from being handled through formal claims processes, thus streamlining claims handling for larger incidents. The application of a franchise is most relevant during the claims process, as it directly affects how and when claims are settled based on their value in relation to the established threshold.

In contrast, franchises would not typically be relevant in circumstances of complete loss, where the total loss exceeds any thresholds. In cases of partial loss where underinsurance is present, these considerations would fall under different terms of the insurance policy rather than invoking a franchise. Similarly, while multi-layered coverage may involve complex arrangements of coverage, the specific application of a franchise is more directly tied to the claims process itself.