Voluntary Deductible in Car Insurance

What is a Deductible?

A deductible in car insurance is an amount that the insured must pay out of their pocket before the claim kicks in. There are two types of deductibles in a car insurance policy: voluntary deductible and compulsory deductible. Let's understand both and learn the difference between the two.

What is Voluntary Deductible in Car Insurance?

A voluntary deductible in car insurance is an amount you agree to pay from your pocket at the time of a claim. You can choose this optional amount at the beginning of your policy term and pay it in addition to the compulsory deductible before your insurer pays the rest of the claim amount. It is important to note that a voluntary deductible in car insurance is applicable only to own damage (OD) and comprehensive plans, and not to third-party insurance.

How Does Voluntary Deductible in Car Insurance Work?

In a car insurance, voluntary deductible works as follows:

• When you buy or renew motor insurance, you inform the insurer about your choice to opt for a voluntary deductible.
• The insurer then discusses the amount of your voluntary deductible.
• Your payable policy premium will be then calculated as per the finalized voluntary deductible.
• Once everything is discussed, you can buy your car insurance policy.
• When you file a claim, you pay the fixed voluntary deductible for a claim settlement.

Let's take an example to understand voluntary deductible in insurance better:

For instance, you own a car of 1000 cc engine capacity and have selected a voluntary deductible of Rs. 5,000. 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:

Since you opted for a voluntary deductible worth Rs. 5,000, out of the total claim amount of Rs. 15,000, the insurer is only liable to pay Rs. 6,000, and you will pay the remaining Rs. 9,000 from your pocket.

What is a Compulsory Deductible in Car Insurance?

A compulsory deductible is a mandatory amount that must be paid by the insured at the time of a claim. This amount is fixed by the Insurance Regulatory and Development Authority of India (IRDAI) and entirely depends upon the engine capacity of the insured four-wheeler. Here are the rates:

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

How Does Voluntary Deductible Help in Reducing Car Insurance Premium?

Opting for a voluntary deductible in car insurance means you agree to pay a portion of the claim amount, which reduces your insurer's liability. As a result, your car insurance company lowers your premium cost.

Here is the table showing the maximum discount you get on your premium by opting for a voluntary deductible in car insurance:

Is Voluntary Deductible in Car Insurance Beneficial?

Voluntary deductible or voluntary excess in insurance 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, the voluntary 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 in insurance. By default, the policyholder is supposed to shoulder this amount on their own.

Voluntary Deductible Vs Compulsory Deductible in Car Insurance

Here are the key differences between a compulsory deductible and a voluntary deductible in car insurance:

When Should You Opt for a Higher Voluntary Deductible in Car Insurance?

A voluntary deductible allows you to buy affordable car insurance due to discounted premiums. You should opt for a higher voluntary deductible in your car insurance policy if you are:

1. An Excellent Driver

   If you have excellent driving skills and a clean driving record, the chances of you getting involved in an accident are lower. Thus, in this case, choosing a higher voluntary deductible in car insurance will be beneficial, as the probability of raising a claim is significantly reduced.

2. Not Living in an Accident-Prone Area

   If you live in an area where there is less traffic and accidents are rare, the chances of you raising a claim are again lower. In this scenario too, you can opt for a higher voluntary deductible.

Common Misconceptions About Voluntary Deductible in Car Insurance

Here are a few misunderstandings about a voluntary deductible in car insurance:

1. Additional Cost

   Some might consider a voluntary deductible an extra cost to the car insurance premium. However, it is optional, and you can choose not to opt for it.

2. Unnecessary Expense

   Choosing a higher voluntary deductible in car insurance is sometimes considered an unnecessary expense. However, you can significantly reduce your policy premium and achieve long-term savings. Also, you only pay this amount when you make a claim.

3. Same as No-Claim Bonus (NCB)

   Some people might confuse a voluntary deductible with a no claim bonus in car insurance. When you do not file a claim in your policy, your insurer rewards you with an NCB, which is a discount on your renewal premium. On the other hand, the voluntary deductible in insurance is allowed only once, i.e., when you buy the policy.

4. Voluntary Deductible vs. Co-Payment

   A voluntary deductible in car insurance is decided upon during policy inception, and you pay this amount first when you raise a claim. After this only the insurer settles the remaining claim amount.
   While in the case of co-payment, the final claim amount is shared between you and the insurer based on the agreed percentage mentioned in your car insurance policy.

5. No Compulsory Deductible With Voluntary Deductible

   Whether you opt for a voluntary deductible in car insurance or not, paying the compulsory deductible is a must at the time of a claim.