How Car Insurance Deductible Works?

Owning a car is a dream come true for many, for others it could be a much-needed asset—whatever is your reason for loving your car, make sure you secure it with the right car insurance policy. The Motor Vehicle Act, 1988 mandates third-party insurance for every car owner. However, a third-party policy offers only partial cover. While it covers third-party liabilities in case of a mishap, it will not protect you against any injury or damage to your car. Therefore, it is advised to secure your car and your finances with a comprehensive car insurance policy since it covers third-party liabilities as well as your own damage. A comprehensive car insurance policy can give you complete financial protection in the face of an unfortunate event.

What is the deductible in car insurance?

This is important. Remember, no insurance policy pays 100% of the claim amount since every plan comes with a deductible. A deductible is an amount you have to pay from your pocket as and when you make a claim. So, when an unfortunate event occurs, you pay a certain amount by yourself, and then the insurance company settles the remaining amount. For example, let’s say your car insurance policy has a fixed deductible of 5% and you make a cashless claim for Rs 50,000. In this scenario, once you make a claim, the insurer will ask you to pay the deductible, which will be Rs 2500 in this case. After you pay, the insurer will settle the remaining amount, which is Rs 47,500 directly with the garage.

In case of a reimbursement claim, you will have to pay the entire expenses to the garage from your pocket and the insurance company will reimburse the claim amount after deducting the deductible.

How are car insurance deductibles beneficial?

Car insurance deductible is beneficial to policyholders as it reduces your insurance premium amount considerably. The higher the deductible, the lower the premium. Therefore, many people opt for a higher deductible to reduce the car insurance premium.

Deductible is beneficial to the insurance company as it discourages the policyholder from making small claims.

What are the different types of deductibles in car insurance?

There are two types of deductibles in car insurance

1. Compulsory deductible:

A compulsory deductible is a fixed amount, imposed by the Insurance Regulatory and Development Board of India (IRDAI), that you must pay. The compulsory deductible varies with the car’s engine and cubic capacity. It is applicable only for a comprehensive car insurance policy and not for a sole third-party car insurance policy. Also, a compulsory deductible does not affect your car insurance premium.

For cubic capacity up to 1500cc, the compulsory deductible is set at Rs 1000. For cubic capacity above 1500cc, the deductible is set at Rs 2000.

2. Voluntary deductible:

With this type of deductible, you have the right to choose the amount of deductible as per your budget and risk-taking ability. For example, suppose you know you can afford to pay up to Rs 10,000 in case of uncertainty, you can choose it as your voluntary deductible amount to save on the premium amount. Moreover, you can choose the voluntary deductible in the form of a percentage of a claim amount. So, for example, you can choose to pay 5% of the claim amount as a deductible.

However, it would be best to keep in mind that the amount or percentage of deductible that you choose remains constant for all your claims. Thus, you need to be sure of your budget and how much risk you can afford.

What will happen if my deductible amount is more than the claim amount?

If your deductible amount is more than the claim amount, your insurance company is not liable to pay anything. Hence, your claim will not be accepted. The insurance company will come into the picture only after you have paid the deductible.

To conclude

It is advised to opt for voluntary deductible only after analysing your budget and risk capacity. You should also anticipate any possible risks and likelihood to make claims. Although voluntary deductible can reduce your premium substantially, you will have to pay a higher amount in case of an unfortunate event. Therefore, you should opt for a deductible you can pay easily.