Understanding the finer aspects
What is a Deductible in a Car Insurance Policy?
Like in all insurance plans, a deductible is the amount of money that the insured pays in case of a claim before his insurance plan starts to pay. Take a basic example – if your deductible is ₹2500 and you incur expenses of ₹3000, then your insurance company will pay ₹500 as the claim amount. However, if your total expense is ₹2500, then there will be no payout from the insurer.
What is the Need for a Deductible?
A deductible protects the insurance company against unnecessary claims. This also ensures that people are more careful with their vehicles as they themselves have to bear a certain extent of the expenses.
There are two types of deductibles in insurance:
- Compulsory Deductible
It is a fixed amount set by insurance companies, in accordance with the Insurance Regulatory Development Authority of India (IRDAI) guidelines. It is determined on the basis of the engine capacity of your car. According to India Motor Tariff, the revised standard rate for compulsory deductible in case of private cars is given as follows:
- Cars up to 1,500 cc – ₹1000
- Cars above 1,500 cc – ₹2000
An insurer can charge a higher deductible if the car is older and thus presents a higher risk of claim. Compulsory deductible does not affect the premium in any way. The premium is based on other aspects such as Insured Declared Value (IDV), make and model.
- Voluntary Deductible
This is an optional limit chosen by you to meet a part of the claim from your own pocket before raising it to the insurer. You can choose this limit considering your affordability and the risks your vehicle will likely endure.
A voluntary deductible has an inversely proportional relationship to your premium amount. Consider it this way – higher the voluntary deductible, lower the premium.
Thus, both these deductibles have distinct features. Their differences are drawn out in the following table:
| No flexibility, chosen by the insurer (in compliance with IRDAI)
|| Very flexible, chosen by the policyholder according to his/her needs
| Does not affect the premium in any way
|| A high voluntary deductible results in a lower premium
| Does not affect savings in any way
|| Results in long-term savings.
| In case of a claim, a policyholder has to only pay the compulsory deductible amount
|| In case of a claim, a policyholder has to pay both compulsory as well as voluntary deductible amount
When Should You Opt for Voluntary Deductible?
Being aware of all the aspects of your car insurance policy and how it will affect you helps in combating this confusion about what features to opt for. If you are an efficient and attentive driver, you will profit from this option, as it will considerably reduce large chunks on your premium amount.
However, before purchasing this type of coverage you should be confident that you will drive cautiously and not file claims for small damages frequently. You should also be careful that the chosen threshold will not put you in a financial fix in case of a claim.