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 a compulsory deductible in car insurance?
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.
Benefits of compulsory deductible in car insurance
Here are the benefits:
- Standardisation: Ensures uniformity across all policies, making it easier for policyholders to understand their obligations.
- Discourages minor claims: By having to bear a portion of the claim, policyholders are less likely to file claims for minor damages, promoting responsible usage.
- No impact on premium: Since it's a fixed amount set by IRDAI, it does not influence the premium calculations.
What is a voluntary deductible in car insurance?
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 encounter.
A voluntary deductible has an inversely proportional relationship to your premium amount. Consider it this way – the higher the voluntary deductible, the lower the premium.
Benefits of voluntary deductible in car insurance
Here are some benefits of voluntary deductible in car insurance:
- Reduced premium: Opting for a higher voluntary deductible can lead to significant discounts on the premium.
- Customised risk-sharing: Allows policyholders to choose their level of risk-sharing based on their driving habits and financial comfort.
- Encourages cautious driving: Knowing that they bear a higher portion of potential claims, policyholders may drive more cautiously.
What is a deductible in car insurance policy?
In essence, a deductible is the portion of a claim that the policyholder agrees to pay out of pocket. 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.
What is the need for a deductible?
These are the reasons why a deductible is needed in car insurance:
- Risk-sharing: Deductibles ensure that policyholders share in the risk, promoting responsible behaviour.
- Reduces minor claims: By bearing a portion of the cost, policyholders are less likely to file claims for minor damages, reducing administrative costs for insurers.
- Premium adjustments: Especially with voluntary deductibles, policyholders can adjust their premiums based on the deductible amount they choose.
Conclusion
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 of 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 before buying car insurance online.
FAQs
1. Can I choose not to have a voluntary deductible?
Yes, opting for a voluntary deductible is entirely optional. If you prefer not to bear additional out-of-pocket expenses during claims, you can choose not to have one.
2. Does a higher voluntary deductible always mean a lower premium?
Generally, yes. A higher voluntary deductible often results in a lower premium. However, it is essential to balance the potential savings with the increased out-of-pocket expenses during a claim.
3. How does the deductible affect my No Claim Bonus (NCB)?
Filing a claim, regardless of the deductible, can impact your NCB. If the claim amount is less than or marginally above the deductible, it might be prudent not to file a claim to preserve NCB in car insurance.
4. Is the deductible applicable for every claim?
Yes, both compulsory and voluntary deductibles apply to each claim made under the policy
Disclaimer: The information provided in this blog is for educational and informational purposes only. It may contain outdated data and information regarding the Insurance industry and products. It is advised to verify the currency and relevance of the data and information before taking any major steps. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.