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Compulsory and Voluntary Deductibles in Car Insurance

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If you want to get the best car insurance policy, you need to look out for various factors. The cost of the policy is one of them. It’s very tempting to go for cheaper coverage. People often focus on the monthly premium rate but don’t realise that the lower monthly rate is backed by higher deductible rates. You must look out for all these costs because they have an important impact on your overall average cost over a few years.

Car insurance differs from one company to another, but if you are buying a car insurance policy for the first time, you might not know what a deductible means. This article will explain compulsory and voluntary deductibles in detail.

● What are Deductibles in Car Insurance?

In simple words, deductibles can be defined as the amount that a policyholder must pay in the case of a claim before the insurance provider covers the outstanding claim value. To illustrate, suppose you have filed a car insurance claim for 10,000 INR. If your insurance policy's deductible value is 2,000 INR, the insurance company will only provide 8,000 INR as claim settlement. You need to pay 2,000 INR from the claim amount from your wallet.

Car Insurance Deductibles can be differentiated into two broad terms, namely Compulsory and Voluntary Deductibles.

● Compulsory Deductibles:

IRDAI makes compulsory deductibles necessary in an automobile insurance policy. It is a predetermined amount specified by the IRDAI regulations and established by the auto insurance provider. This quantity is determined by the insured vehicle's engine capacity. The mandatory deductible sum for private automobiles of 1500 cc engine capacity and above is currently 2,000 INR, whereas for private cars with 1499 cc or lower engine capacity is 1,000 INR. There is, however, a condition. If your automobile is old, your insurance provider may raise your compulsory deductible amount. This is owing to the notion that the amount of risk and likelihood of claims are raised according to the vehicle's age. As a result, when purchasing car insurance coverage, make sure you understand your compulsory deductible value.

● Voluntary Deductibles:

When it relates to voluntary deductibles, as its name implies, it is entirely up to the policyholder to choose it. This is a sum that requires serious evaluation and contemplation. As the policyholder, you will be responsible for this sum on top of the compulsory deductible value. Although the compulsory deductible has zero effect on vehicle insurance premiums, the voluntary deductible does. To be more specific, it is inversely related to the sum of the premium. Choosing this quantity is primarily a balancing act that takes into account your spending plan, risk awareness, as well as other relevant factors.

● Compulsory Deductibles vs. Voluntary Deductibles:

Why Deductibles are important?

With the increased prevalence of cars in all parts of the country, motor insurance is becoming very essential. It covers damages to your automobile due to accidents, collisions with other automobiles or other objects. The extent of damage also depends upon the kind of policy you opt for and the type of vehicle. Compulsory deductibles in car insurance policies are there to prevent policyholders from making frequent claims against the insurer. The compulsory deductible is the amount a policyholder should pay toward losses due to damage to the car in an accident before any compensation is paid by the insurer. The compulsory deductible is not included in the insurance premium but is charged as a fee when a claim is made.

A voluntary deductible amount is a monetary sum you can choose not to claim towards the claims of a loss or damage that is covered by the insurance policy. This means you agree to take responsibility for a part of the total cost of repair or replacement, on the first occurrence only. The amount selected is called a voluntary deductible and it is sometimes referred to as an alternative deductible. Having additional voluntary excess amounts can help you receive discounts on your premium. The higher voluntary excess you choose, the more likely it will attract a lower insurance premium from your broker.

Conclusion

Deductibles in terms of car insurance policies are limits on the amount to which an insured person is liable to pay per accident. While you cannot alter the compulsory deductible amount, you can change your voluntary deductible amount or choose to ignore it altogether. A higher voluntary deductible results in a lower premium and vice versa. Most policyholders prefer low deductibles as it encourages them to be more careful about their cars and more willing to use advanced safety features. There are no rigid rules governing deductibles as the deductibles vary from company to company and from one policy to the other. This is a very important factor that is often overlooked by the customers. They blindly opt for the cheapest policy but are unaware of its drawbacks. While picking the right insurance policy for your car, make sure you check the deductibles first so that you don’t regret it later.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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