Although only third party cover is mandatory as per the motor laws, a car owner can also buy a comprehensive car insurance policy. Unlike third party insurance, a comprehensive car insurance policy covers damages to the policyholder’s car as well as third party liabilities. This type of car insurance provides greater coverage and thus, comes at a higher premium amount. You can check car insurance premium offered by various insurers by using a car insurance calculator online.
Car insurance premiums are not rigid and can be reduced. This is possible as comprehensive car insurance premiums are determined using various factors, such as make & model of the car, its age, RTO, No Claim Bonus (NCB) as well as voluntary deductibles. You can use the car insurance calculator to check your premiums if you alter these factors. You may have heard about voluntary deductibles as a great way of reducing your car insurance premiums. Let’s understand everything about deductibles.
Deductible refers to the part of the claim amount that has to be borne by the car owner. The motor insurance company is only liable to pay the remaining part of the claim amount to the policyholder. Only after the deductible amount is paid by the car owner, the motor insurance company pays the rest of the claim amount towards the repairs or replacement of the car. Also known as claim excess, the deductibles remain fixed irrespective of the total claim amount.
Let’s understand better with an example. Suppose your car has been damaged and you have raised a claim for its repair amounting to Rs 50,000. As per your car policy, you are liable to pay a deductible of Rs 5000. As a result, you will have to pay Rs 5000 towards the repair of your car. Your insurer will only pay the remaining Rs 45,000 as the claim amount.
There are two types of deductibles under car insurance - Compulsory Deductible and Voluntary Deductible. Take a look:
Compulsory deductibles are those deductibles that need to be compulsorily paid by the car owner. This type of deductible is an inevitable part of your car insurance policy and needs to be paid by all policyholders during claim settlement.
The compulsory deductible has been fixed by motor insurers in consultation with the IRDA (Insurance Regulatory & Development Authority of India) on the basis of the engine capacity of a car. According to the Indian Motor Tariff, cars with less than 1500 CC attract a compulsory deductible of Rs 1000. On the other hand, the compulsory deductible amount is Rs 2000 for cars with an engine capacity of more than 1500 CC.
Voluntary deductibles are those deductible that a car owner voluntarily agrees to pay during claim settlement. This type of deductible is purely a choice of the car owner and is not mandatory. The voluntary deductible amount has to be paid at the time of claim settlement. The insurer settles the voluntary deductible amount along with compulsory deductible and accordingly pays the remaining claim amount.
Let’s take another example to understand compulsory and voluntary deductible. Suppose your car has been damaged and the repair bill comes to Rs 20,000. Since your car is less than 1500 CC, your compulsory deductible comes to Rs 1000. You had also opted for a voluntary deductible of Rs 2000 while buying your car insurance policy. This means you have to bear an expense of Rs 1000 + Rs 2000 which comes to Rs 3000. As a result, your motor insurance company will pay Rs 20,000 - Rs 3000 = Rs 17,000 as claim amount towards the repair of your car.
Voluntary deductibles reduce car insurance premium by earning the car owner a discount. When you opt for a voluntary deductible under your comprehensive car insurance policy, you end up reducing the liability of your motor insurance company by reducing the claim amount. As an appreciation of your gesture, the insurer gives you a discount on your car insurance premium. As a result, your car insurance premiums are reduced.
The voluntary deductible is directly proportional to the discount you get and inversely proportional to your car insurance premium. The higher is your voluntary deductible amount, the greater discount you will earn from your insurer. In turn, the lower your car insurance premiums will get. Thus, it can be said that higher voluntary deductible leads to lower premiums. You can check the impact of the voluntary deductible on your premium by using the car insurance calculator.
However, caution should be maintained while deciding your voluntary deductible amount. You should only choose a voluntary deductible amount that you are confident to afford during claim settlement. You should be able to pay the opted voluntary deductible amount along with compulsory deductible in case your car gets damaged. This is important as you cannot refuse to pay it during claim settlement as your insurer will only pay the remaining amount as the claim amount.
Take a look at five crucial facts about voluntary deductibles that you must know as a car owner:
The voluntary deductible has to be paid only in case of a car insurance claim. You don’t have to pay the deductible amount unless your claim has been approved by your motor insurer. The voluntary deductible amount will be subtracted from your total claim amount and the insurer will pay only pay the remaining amount to you. Besides, you decide the voluntary deductible amount while buying the policy and so you don’t get any surprises later.
Voluntary deductible is not an additional expense but a part of your claim amount. You don’t have to pay extra to get a voluntary deductible discount. Instead, it lowers your comprehensive car insurance premium as the insurer will grant you a discount for opting it. It is more beneficial for skilled drivers as voluntary deductible are not to be paid unless you raise an insurance claim. Thus, the voluntary deductible is more of a saving than an expense. You can check how voluntary deductible reduces your premium through a car insurance calculator.
Unlike popular myth, the voluntary deductible is not the same as co-payment. Voluntary deductible is a part of the claim amount that you agree to pay during claim settlement. It remains fixed no matter you claim for a higher or lower amount. For example, if you have opted for a voluntary deductible of Rs 2500, you will have to pay the same amount whether you raise a claim for Rs 10,000 or Rs 1 lakh.
On the other hand, co-payment makes you share the burden of the claim amount with your insurer during claim settlement. The co-payment amount is not fixed and is determined based on the amount for which the claim has been raised. For example, if your car insurance policy requires you to pay a co-payment of 15 per cent, you will have to 15% of Rs 10,000 as well as 15% of Rs 1lakh, irrespective of whether the claim amount is Rs 10,000 or Rs 1 lakh.
Voluntary deductible is different from No Claim Bonus (NCB). Although both can be used to reduce your car insurance premiums, they are not the same. NCB is granted as a reward for not raising a claim in your previous policy year. On the other hand, the voluntary deductible has to be paid only if you raise a claim during your policy tenure. Unlike NCB, voluntary deductible reduces your car insurance premium irrespective of raising a claim or not. Moreover, NCB can be accumulated to save more on your premium after a few years while voluntary deductible cannot be accumulated and can be used to reduce your premium during the same year.
Contrary to popular belief, the voluntary deductible is not always helpful. It is beneficial for people who are skilled drivers and do not live in an accident-prone area. People who often find themselves in an accident or stay in an accident-prone area will have to raise a claim frequently. As a result, they will have to pay more as deductible than the amount they saved on their insurance premium. Thus, you must opt for voluntary deductible only if you are confident about your driving skills and stay in a safe area.
Summing It Up
Deductibles are a part of all comprehensive car insurance policies. While you can’t skip compulsory deductibles, you get to choose to buy voluntary deductible. It can help you save big on your car insurance premium, the impact of the same can be checked on a car insurance calculator. Make sure you have understood the various facts about voluntary deductible before opting for it.
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