We use cookies to improve security, personalize the user experience,
enhance our marketing activities (including cooperating with our marketing partners) and for other
business use.
Click "here" to read our Cookie Policy.
By clicking "Accept" you agree to the use of cookies. Read less
Exploring the Franchise Clause: Key Insights and Legal Significance
Definition & Meaning
A franchise clause is a provision found in casualty insurance policies. It specifies that the insurer will not pay claims that are below a certain threshold amount. If a claim exceeds this threshold, the insurer will cover the amount above that limit. This clause is designed to help insurance companies manage costs by avoiding the processing of small claims, which can be more expensive to handle than the actual claim amount.
Table of content
Legal Use & context
Franchise clauses are commonly used in casualty insurance, which includes various types of coverage such as property, liability, and auto insurance. In legal practice, these clauses help define the responsibilities of both the insurer and the insured regarding claims. Users may encounter franchise clauses when reviewing their insurance policies or when filing claims. Understanding this clause can assist individuals in managing their expectations and navigating the claims process effectively.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
(hypothetical example) Consider a homeowner with a casualty insurance policy that includes a franchise clause with a threshold of $500. If they experience a minor water leak causing $300 in damages, the insurer will not pay for this claim. However, if the damages amount to $700, the insurer will cover $200, as this is the amount exceeding the threshold.
State-by-state differences
Examples of state differences (not exhaustive):
State
Franchise Clause Threshold
California
$500
Texas
$1,000
New York
$750
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Description
Difference
Deductible
The amount the insured must pay out-of-pocket before insurance coverage kicks in.
A deductible is paid upfront, while a franchise clause only applies if the claim exceeds a specified amount.
Exclusion
A provision that eliminates coverage for certain risks or damages.
Exclusions specify what is not covered, while franchise clauses set a threshold for when coverage begins.
Common misunderstandings
What to do if this term applies to you
If you have a franchise clause in your insurance policy, review the terms to understand your coverage limits. If you experience a loss, assess the total damages to determine if they exceed the threshold. For assistance in filing a claim or understanding your policy, consider using US Legal Forms' templates for guidance. If your situation is complex, seeking professional legal advice may be beneficial.
Find the legal form that fits your case
Browse our library of 85,000+ state-specific legal templates.