Voluntary Deductible in Car Insurance

A voluntary deductible allows an insurer to buy cheaper car insurance due to discounted premiums. The insured can choose this optional deductible as per their budget which reduces the risk on the insurer's part significantly, assuring that only genuine claims will be made.

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What is a Deductible?

Let us first understand what a deductible is. The amount an insured must pay out of their pocket before proceeding with a claim or reimbursement is a deductible. For example,

If Aman files a claim worth Rs. 20,000 and his deductible is Rs. 2,000 then his insurer will deduct Rs. 2,000 from the total amount and pay him Rs. 18,000 for car damages.

Types of Deductible in Car Insurance

A four-wheeler insurance policy includes two kinds of deductible:

Compulsory Deductible

This is a mandatory deductible that must be paid by the insured. The rates are fixed by the insurance company and entirely depends upon the engine potential of the four-wheeler.

The rates are set for the private four-wheelers according to the Indian Motor Vehicle Act:

  • Cars with engine potential over 1500 cc: Rs. 2000;
  • Cars with engine potential less than 1500 cc: Rs. 1000

Voluntary Deductible

A voluntary deductible is the particular share of the claim that the vehicle owner will agree to pay voluntarily from their pocket. If one goes for a higher voluntary deductible, then the car insurance premium will be decreased significantly.

Learn more about the voluntary deductible and its impact on the payable insurance premium through the following table:

Amount of Voluntary Deductible

Discount Percentage on the Premium

Rs. 2,500

20% on the own damage premium, subject to a maximum amount of Rs. 750

Rs. 5,000

25% on the own damage premium, subject to a maximum amount of Rs. 1,500

Rs. 7,500

30% on the own damage premium, subject to a maximum amount of Rs. 2,000

Rs. 15,000

35% on the own damage premium, subject to a maximum amount of Rs. 2,500

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Is Voluntary Deductible Beneficial?

Voluntary deductible is a great way to reduce the premium of comprehensive car insurance. However, the insured must consider some factors before opting for it. The main aim is to save money, but if the insured end up paying more than they are saving then this deductible won’t serve its purpose.

Some charges, including the cost of fibre and plastic parts, go beyond the coverage as per compulsory deductible and voluntary deductible. By default, the policyholder is supposed to shoulder this amount on their own.

For example:

For instance, a person has a car of 1000 cc engine capacity and has selected a voluntary deductible of Rs. 5000. After a minor accident, the repair charges amount to Rs. 15,000. In such a scenario, the insurance company will make the claim/reimbursement payment by the following calculations:

Total claim amount (A)

Rs.15,000

Consumable parts and components deduction (B)

Rs. 3,000

Compulsory deductible Amount (C)

Rs. 1,000

Voluntary deductible Amount (D)

Rs.5,000

Total payable claim amount A – (B+C+D)

Rs. 7,000

Since the vehicle owner opted for a voluntary deductible worth Rs. 5,000, out of the total claim amount of Rs. 15,000, their insurer is only liable to pay Rs. 7,000.

In this case, more than half of the cost falls on the shoulders of the vehicle owner. The basic goal of buying car insurance in the first place is not met.

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Difference Between Compulsory Deductible and Voluntary Deductible

Also known as compulsory excess and voluntary excess, the differences between these two types of deductibles have been listed below:

Compulsory Deductible

Voluntary Deductible

The set amount must be paid; can’t be opted out

The insured has a choice to opt for this;
Once opted, the predetermined sum must be paid in every claim

Claim payout is usually higher

Claim payout is usually lower

Useful in discouraging petty claims

Useful in reducing the cost of car insurance premium

Can’t be modified by the policyholder

Can be modified; given that the amount is more than the compulsory deductible amount

Voluntary Excess in Car Insurance: How Does It Work?

Voluntary deductible or voluntary excess works as follows:

  • The policyholder must inform the insurer about their choice to opt for VD while buying or renewing their motor insurance
  • The insurer will then discuss the VD amount
  • The payable premium will be calculated as per the finalized VD
  • Once everything is discussed, the insured can buy the policy
  • When a claim arises, the policyholder must pay the fixed VD to settle the claim

 

FAQ

  • Q.1 Who should opt for a voluntary deductible in car insurance?

    It makes sense to go for a higher voluntary deductible if the insured is an excellent driver with great skills. This reduces the chance of raising a claim altogether. At the same time, they can buy the best car insurance plan at a discounted price.

  • Q2. When should voluntary deductibles be avoided?

    If a person opts for a higher voluntary deductible that they can't afford, then it is better not to go for this. Similarly, new drivers or reckless drivers who are unsure about their skills should keep in mind that they will have to pay that amount in case of an accident. Those who have an old vehicle or live in an accident-prone area should also refrain from opting for a voluntary deductible.

  • Q3. Is there any benefit of voluntary deductible?

    The main benefit of this type of deductible is a discount on the premium cost. Those who opt for a higher amount will get a cheaper premium as the risk on the insurer's part reduces significantly. This means if a claim is made, it will be genuine and the policyholder will pay the stipulated sum before the insurer.

  • Q4. What if I am unable to pay a voluntary deductible during claim settlement?

    It is important to opt for this deductible only if you can afford to pay this sum any time a claim is raised. Because this fetches a significant discount on car premium, you can’t back out of this. Until you can pay your due voluntary deductible, you won’t be able to file a claim for damages.

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