Legal Definitions - franchise clause

A franchise clause is a provision in an insurance policy that states the insurer will only pay a claim if it exceeds a certain amount. If the claim is below that amount, the insured is responsible for all damages. This is different from a deductible, which the insured always has to pay.

Let's say you have a car insurance policy with a franchise clause of $500. If you get into an accident and the damages are $400, you will have to pay for all the damages yourself. However, if the damages are $600, the insurance company will pay for the entire amount.

Another example is a homeowner's insurance policy with a franchise clause of $1,000. If your house is damaged in a storm and the repairs cost $800, you will have to pay for all the repairs. But if the repairs cost $1,500, the insurance company will pay for the entire amount above the $1,000 franchise.

These examples illustrate how a franchise clause works in insurance policies. It is important to understand the terms of your policy and how much you will be responsible for in the event of a claim.