Bikini Deductible

A tax break that becomes applicable when you work as a swimsuit model. It's also the nickname for a particular insurance coverage structure.

A bikini deductible takes place when a company builds a layer of self-insurance into its network of coverage. To put it another way, the company gets insurance for costs under a certain amount, then leaves a gap of potential costs with no outside insurance, then has another insurance policy for costs over a certain higher amount. Basically, there is a hole in the coverage where the company takes the risk onto itself if damages occurred.

An example: a company gets an insurance policy for all losses up to $5 million. So any claim it makes under the $5 million mark gets covered by this coverage. The company then gets a separate policy that covers any losses above $15 million. The firm is now covered for any horrendous event that could potentially cost a back-breaking amount.

For losses between $5 million and $15 million, the company decides it will pay for any damages that come up, effectively leaving it without outside insurance for this loss range.

The company is therefore covered on the bottom and covered on the top, but leaves the middle bare. See the bikini connection?

The insurance policy for the "bottom" ($5 million and under in our example) is comparatively cheap, because the losses involved are relatively small.

Meanwhile, the insurance policy for the "top" (more than $15 million in the example) is relatively cheap because the likelihood of an event like that happening is relatively remote. The company deems that the "middle" coverage is not necessary, because it isn't big enough to be disastrous if it happens (it won't bankrupt the company if it ends up with a damage bill), but it’s unlikely enough that insuring against it with an outside firm isn't worth the cost.