Deductibles In Car Insurance

Deductibles In Car Insurance

Car insurance policies vary from one business to the next, but you might not be familiar with the concept of a deductible if you are purchasing coverage for the first time. The amount you must pay out of pocket when filing an insurance claim is referred to as the insurance deductible. In the case of car insurance, deductibles are a payment made by the policyholder during the resolution of a claim. The insurance company often pays the majority of the claim amount after acknowledging the claim. However, a deductible is a requirement for all insurance claims and must be paid by the policyholder. In short, deductibles are designed to lower the number of claims that policyholders file.

There are two types of deductibles in the insurance industry, namely, compulsory deductibles and voluntary deductibles.

Why Are Deductible Important In Car Insurance?

To evaluate the importance of a deductible in your insurance policy, let us understand, with an example, what an insurance deductible is all about.

For instance, Mr Prabhu Gupta who owns a Maruti Suzuki Swift Dzire meets with a minor accident. Mr Gupta then takes his car to the nearest network garage for repairs. The bill comes to Rs. 20,000, and Mr Bajaj has an insurance deductible of Rs. 2,000.

Therefore, in this case, Mr Prabhu will have to bear Rs. 2,000 while his insurance company pays the rest Rs. 18,000.

Policyholders would submit claims for even the tiniest damages without the idea of a deductible, and the insurance company would be responsible for paying!

Deductibles prevent policyholders from abusing their coverage and make sure they file claims only when they are necessary.

Types of Car Insurance Deductibles

The following are the two types of deductibles in car insurance.

1. Compulsory Deductibles

These are insurance deductibles, as the name implies, and they must be paid to the insurer at the time of claim settlement. This has no impact on your car’s IDV, and as a result, it has no bearing on the insurance policy premium you must pay. The Insurance Regulatory Development Authority of India determines how much you must pay in mandatory deductibles (IRDAI).

The updated standard rate for the required deductible in the case of private cars is as follows, per India Motor Tariff:

  • Cars up to 1,500 cc – ₹1000
  • Cars above 1,500 cc – ₹2000

If the car is older and hence provides a higher risk of the claim, the insurance may charge a higher deductible. The premium is unaffected by a required deductible in any way. In addition to these factors, the premium is determined by the make, model, and insured declared value (IDV).

2. Voluntary Deductibles

The policyholder chooses the voluntary deductible, as you might infer from the name.

It does not, however, take the place of a required deductible. You must pay more money on top of the required deductible if you choose a voluntary deductible.

The value of the optional deductible often depends on your insurance budget and how likely it is that your car will be involved in an accident.

Consider that you need to file a Rs 10,000 insurance claim to repair your beloved vehicle after a collision. Your car has a 1200 CC engine, and you’ve decided to set a voluntary deductible of Rs 3000. How much financial relief will the insurer provide? Since you will be responsible for paying the remaining Rs. 4000, the insurer will only provide you Rs. 6000 to fix your damages. The combined amount of the mandatory deductible (Rs. 1000) and the voluntary deductible (Rs. 3000) you choose is Rs. 4000.

Difference Between Voluntary & Compulsory Deductibles

Here is the complete difference between voluntary and compulsory deductible in car insurance.

ParametersCompulsory DeductibleVoluntary Deductibles
FlexibilityThe Insurance Regulatory Development Authority of India predetermines the number of required deductibles for auto insurance based on the engine size of the covered vehicle.The holder of an automobile insurance coverage determines the optional deductible amount. It is not necessary to possess.
Relation with the insurance premiumThe mandatory deductible amount has no bearing on the cost of the automobile insurance premium.The size of the voluntary deductible is negatively correlated with the cost of the vehicle insurance premium.
PaymentIn the event of an automobile insurance claim, the policyholder is only required to pay the sum designated as the mandatory deductible.In the event of an automobile insurance claim, the policyholder is required to pay both the mandatory and the voluntary deductible amounts.
SavingsDoes not have any impact on savingsBrings long-term savings.

When To Opt For Deductible In Car Insurance?

This uncertainty about which features to choose can be reduced by being informed of all the components of your auto insurance policy and how they will affect you. This choice will benefit you if you are a careful and efficient driver because it will greatly cut the amount of your premium.

However, you should be certain that you will drive defensively and refrain from filing several claims for minor damage before choosing this sort of coverage. Additionally, be sure that the level you choose won’t place you in a tight financial situation in the event of a claim.

Conclusion

The voluntary deductibles you choose for your auto insurance coverage must be wisely chosen. You can choose greater voluntary deductibles to receive a reduced premium if you are a careful driver with good disposable money. However, if you tend to drive recklessly, it is best to either minimize or completely avoid voluntary deductibles.

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