Deductibles in Car Insurance Policy Voluntary & Compulsory

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Car Insurance Deductibles

Car insurance deductible is the amount you agree to pay from your pocket before insurance kicks in. The higher the deductible, the lower the premium. That said, if you choose a high deductible, it could result in significant out-of-pocket expenses. Choosing deductibles in car insurance is about balancing your budget and protection needs.

Types of car insurance

When looking to purchase a motor insurance policy, you can choose from two types for car insurance plans available:

Third-party liability plan

A third-party insurance provides cover for third-party injuries and their property damages. IRDA (The Regulatory Authority for Insurance in India) revises the rates for Third Party Coverage each year.

Comprehensive Car Insurance

Comprehensive car insurance cover damages to your car in addition to covering you against third-party liabilities. This type of plan provides an all-round financial protection relating to your car. The OD premium would vary depending on the car’s make-model, age of the car, engine capacity, and geographical zones.
Further, you can also get add-on cover to enhance the protection offered by the base car insurance plan to meet your particular requirements.

What are deductibles in car insurance?

A car insurance deductible is the amount you will have to pay out of your pocket before the insurance cover kicks in. For car insurance, deductibles are typical calculated on a per claim basis. For example, if you file a claim for damages worth ₹ 15,000 and the deductible is ₹ 1,000 – you will have to pay ₹ 1,000 towards the repair and the insurer would pay the rest.

Increasing the amount of voluntary deductible is a way to reduce car insurance premiums. But this is a double-edged sword, as a higher voluntary deductible would mean a larger amount to be paid out of your pocket when your car needs repair. Therefore, you should choose only as much deductible as you can afford to pay out of pocket.

When opting for a voluntary deductible, consider how much can you pay without it having an impact on your other expenses. Consider your household budget, your income, your saving plan and also your access to credit when deciding on the amount you would be comfortable with.

Remember that a marginally higher premium could save you a lot of headache in case of an unforeseen accident. You do not have to worry about arranging for monies when you may already be under considerable stress.

Why deductibles are applied by car insurance provider?

Car insurance provider believe that deductibles incentivize the policyholder to be responsible in their handling of the car. It ensures that the upkeep of the car is a joint endeavour between the insurer and the owner-driver.

It also allows the car insurance policies to be priced competitively, and makes it accessible for a wider range of customer.

This makes the child act responsibly and ensure that the cycle stays in good condition as much as possible.

Type of deductibles in car insurance

Two types of deductibles may be part of your car insurance policy:

Voluntary deductible that you can opt for
Compulsory deductibles that are imposed by the insurance regulator.

Let us look at each of them in detail.

What is a voluntary deductible in car insurance?

A voluntary deductible is the amount that would have been paid by the insurer under usual conditions, but you selected to pay it out of your pocket. Choosing to have a voluntary deductible added to your insurance cover brings down your car insurance's premium significantly. This is because the risk that the insurer is exposed to is lowered when the insured opts for a voluntary deductible

You will have to decide on how much you are willing to pay out of your pocket at the time of the policy proposal itself. The deductible would be applied to every claim you file in the policy period. The insurer will only pay the part of the claim amount that is above the total voluntary and compulsory deductible.

Difference between compulsory and voluntary deductibles in car insurance

Compulsory and voluntary car insurance deductibles differ from each other in several aspects. These include:

Aspect	Compulsory deductible	Voluntary deductible
Definition	It’s a fixed amount set by the insurer that you must pay in the event of a claim	It’s an optional amount you choose to pay to lower the premium amount
Decided by	The insurer and is non-negotiable	The policyholder based on his/her preference
Impact of premium	No impact	Helps in lowering premiums
Purpose	Ensures you, the policyholder, has some financial responsibility	Encourages you, the policyholder, to avoid minor claims and avail discounts
Applicability	Always applicable during a claim, irrespective of the amount	Only applicable if you’ve chosen it at the time of policy purchase

What is the role of deductibles in different types of car insurance policies?

Car insurance deductibles play a distinct role in different types of car insurance plans. Here’s how:

Comprehensive car insurance

A comprehensive car insurance policy offers robust protection to your car from natural and man-made risks. It also includes third-party liability coverage if your vehicle harms a third party. Car insurance deductibles play a vital role when you claim damages with comprehensive car insurance.

For example, if you’ve opted for a deductible of ₹ 5,000 in a comprehensive plan and your claim amount is ₹ 20,000, you need to pay ₹ 5000 while the insurer will settle the remaining ₹ 15,000. If you opt for a higher deductible amount in a comprehensive plan, your premiums could come down.

Note that both compulsory and voluntary deductibles could be a part of comprehensive car insurance.

Third-party car insurance

A third-party car insurance plan doesn’t cover your own damage. It comes into effect only when your car damages a third party. Since this insurance policy doesn’t cover losses incurred by you or your car, it doesn’t have a deductible component.

When to opt for deductible car insurance?

The amount of deductible you opt for depends on your comfort level and the amount of risk you are willing to take. When deciding on a voluntary deductible, consider if you have a sufficiently large emergency fund available. You do not want to deplete the fund, if it is small, when you can avoid the same.

Another consideration is the value of your car. If you own a expensive vehicle – the premium for the car insurance will be high as well. It may make sense to opt for a small deductible so as to save on the premium. Remember that you would anyways not make small claims to build up your no claim bonus, so it would be sensible to opt for a deductible equal to that amount for which you would anyways not file a claim.

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