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What Are Voluntary Deductibles in Car Insurance? A Complete Guide

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A voluntary deductible in car insurance refers to a fixed amount that the policyholder agrees to cover out-of-pocket towards the insurance claim amount. It is to be paid on top of the compulsory deductible amount during settlements. A voluntary deductible is optional, and the policyholder can choose it at the time of purchasing the car insurance policy. It helps to significantly lower the annual car insurance premium amount. Learn everything there is to know about voluntary deductibles in car insurance on this blog.

How Does Voluntary Deductible Work in Car Insurance?

A voluntary deductible in car insurance is the portion of the repair bill that the policyholder is responsible for covering during a claim. Unlike a compulsory deductible, a voluntary deductible is not mandatory and is generally offered as an optional choice. Policyholders can opt for it at their discretion at the time of policy purchase or renewal.

Let’s understand how voluntary deductibles work in car insurance with an example:

Suppose Mr Roy bought a comprehensive car insurance policy with a voluntary deductible of ₹ 2,500. Now, let's assume he filed a car insurance claim following an accidental collision, and the repair bill turns out to be ₹ 30,000.

In this case, Mr Roy will have to cover the voluntary deductible amount in addition to the compulsory deductible from the total claim amount before the coverage kicks in. For this case, let’s assume the compulsory deductible is ₹ 1,000. Then, Mr Roy will have to cover ₹ 3,500 from his own pocket while the insurer covers the remaining part of the repair bill, i.e.,₹ 26,500. Here’s a detailed look:

• Repair Bill: ₹ 30,000

• Compulsory deductible: ₹ 1,000

• Voluntary deductible: ₹ 2,500

• Policyholder pays: ₹ 3,500 (₹ 1,000 + ₹ 2,500)

• Insurer pays: ₹ 26,500 (₹ 30,000 - ₹ 3,500)

How Does a Voluntary Deductible Affect a Car Insurance Premium?

The insurer offers a discount on the policy premium on the basis of the voluntary deductible amount chosen. In simple words, picking a higher voluntary deductible means getting a higher discount on the premium of the own damage component of the car insurance. By correctly picking a voluntary deductible, you can ensure better savings. For more details, check out how voluntary deductibles impact your car insurance premium.

The following chart highlights the discount on car insurance premiums offered by HDFC ERGO in terms of selecting a voluntary deductible in car insurance:

Note: The above list is for illustrative purposes only. Refer to plan-specific policy wording for precise details.

Difference Between Compulsory Deductible vs. Voluntary Deductible in Car Insurance

As a policyholder, having a clear understanding of what compulsory and voluntary deductibles are and their differences is very important. The following table highlights the key differences between compulsory and voluntary deductibles:

Benefits of Voluntary Deductibles in Car Insurance

These are some of the major advantages of opting for a voluntary deductible in car insurance:

1. Better savings:

By opting for a voluntary deductible, you can lower the own damage premium of the car insurance policy. It helps reduce upfront cost during policy purchase/renewal, meaning better savings.

2. Flexibility:

Based on your budget assessment and risk appetite, you can choose from an extensive bracket when deciding voluntary deductible in car insurance. It helps with better financial planning in the long run.

3. No claim bonus (NCB) conservation:

You are less likely to file for minor car insurance claims where the final payout is less or marginally more than the total out-of-pocket expenses. This helps secure your accumulated NCB benefits, which helps lower premiums during renewals.

4. Safe driving encouragement:

Knowing you have to cover higher out-of-pocket expenses due to the addition of voluntary deductibles on top of compulsory deductibles, you will be motivated to adopt safer driving practices. This also lowers the risk of car accidents.

Who Should Consider a Higher Voluntary Deductible in Car Insurance?

Although a higher voluntary deductible in car insurance has its own advantages, you should only opt for it if you fit the following profile.

• A higher voluntary deductible is suitable for:

1. Individuals who are less likely to be involved in an accident, like experienced drivers with a clean driving record.

2. Individuals who use their cars occasionally.

3. Individuals who live and use their cars in low-risk areas.

4. Individuals who can easily pay the repair bills for minor damages.

5. Individuals with sufficient financial stability to handle the chosen deductible amount in case of making a car insurance claim.

• A higher voluntary deductible is not ideal for:

1. Individuals who lack sufficient experience to navigate risky situations, such as new drivers.

2. Individuals who are not financially stable and rely upon the full coverage under car insurance.

3. Individuals who reside in high-risk areas or use their car frequently.

4. Individuals with older or inexpensive cars, where repairs are often cheaper than covering a higher total deductible amount.

For an in-depth look, check this page on Is Opting for a Voluntary Deductible Worth It? Pros and Cons Explained.

Common Misconceptions about Voluntary Deductibles in Car Insurance

Here are some common misconceptions about voluntary deductibles in car insurance and their reality:

1. “Voluntary deductible is paid as part of the premium”: False

While you can choose the voluntary deductible at the time of policy purchase or renewal, you don’t need to make any upfront payment for it alongside the premium. You only need to pay it when you raise a comprehensive car insurance claim, and it gets approved by the insurer.

2. “Voluntary deductible is to be paid once per claim per year”: False

You need to pay the selected voluntary deductible amount for each approved car insurance claim that you file within the policy term.

3. “Compulsory deductible is not required if you opt for a voluntary deductible”: False

The voluntary deductible in car insurance is not a substitute for the compulsory deductible. It is an additional amount that you may choose to pay on top of the mandatory compulsory deductible. In this case, the sum of both amounts will be your out-of-pocket expenses during claim settlements.

4. “Voluntary deductible is the same as a co-payment”: False

Contrary to common belief, co-payment and voluntary deductible in car insurance are different things. Co-payment means a percentage of the final claim amount that you have to bear, while a voluntary deductible is a fixed amount you choose to pay at the time of claim.

5. “Voluntary deductible is an additional expense”: False

You don’t have to pay anything extra on top of the car insurance premium to opt for a voluntary deductible. Instead, choosing a higher voluntary deductible reduces car insurance premiums. You only need to pay the deductible if and when you file a claim. So, if you don’t file a claim, you don’t have to pay it.

6. “Voluntary deductible is available with third party car insurance”: False

Voluntary deductible only applies to the own damage component of the policy and is hence offered with standalone own damage and comprehensive car insurance policies. You cannot opt for it with third party car insurance.

Conclusion:

A voluntary deductible in car insurance can be a solid choice for policyholders. It helps lower car insurance premiums and manage costs by assuming higher financial risk during claims. If you are an experienced driver with a clean record and can afford higher deductibles, consider weighing your options and choosing a voluntary deductible.

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

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