Know All About Deductibles in a Car Insurance Policy

elishkiya
By elishkiya October 3, 2016 11:17 Updated

Know All About Deductibles in a Car Insurance Policy

A car insurance policy is of two types—third-party liability and own damage insurance cover. While a third-party liability insurance only covers losses or damages caused by your vehicle to a third-party, an own damage cover not only includes losses or damages caused by your car to another vehicle but it also includes any damage caused to your vehicle.

At the time of buying a car insurance policy in India, deductible plays an imperative role. Let’s understand what deductible is.

A deductible is an amount that you agree to pay from your pocket before the car insurance company settles your claim. Deductibles can be divided under the following two heads=

Compulsory Deductible= It is the amount that you have to pay mandatory from your pocket before the car insurance company settles your claim. It is the predefined amount as it is decided by Insurance Regulatory and Authority of India (IRDAI) and is usually computed on the basis of various factors, like IDV, make and model of the vehicle, etc.

The amount corresponding to the deductible is decidedon the basis of various factors, including the engine capacity of the vehicle. As per the India Motor Tariff Act, the compulsory deductible rate is as follows-

  • Cars with a cubic capacity up to 1,500= Compulsory Deductible is Rs. 1,000
  • Cars with a cubic capacity above 1,500= Compulsory Deductible is Rs. 2,000

Your car insurance company may levy high deductible if your car is very old, cubic capacity is high or any other situation which increases the risk of a claim. Irrespective of what your compulsory deductible is, it would not affect your insurance premium.

Voluntary Deductible= It is a part of the claim amount which a policyholder needs to pay ahead before the car insurance company pays the remaining claim amount. Let’s say; you have a car insurance claim of Rs. 15,000 with a deductible of Rs. 5,000. It means, at the time of claim, you would have to pay Rs. 5,000 from your pocket and the car insurance company would pay the remaining Rs. 10,000 (15,000-5,000). The amount is decided by the policyholderon the basis of his/her affordability.

Here’s the discount that you can avail by opting for a voluntary deductible-

Voluntary Deductible Discount
Rs. 2,500 20% on the Own Damage (OD) premium of the vehicle, up to Rs. 750
Rs. 5,000 25% on the OD premium of the vehicle, up to Rs. 1,500
Rs. 7,500 30% on the OD premium of the vehicle, up to Rs. 2,000
Rs. 15,000 35% on the OD premium of the vehicle, up to Rs. 2,500

 

Source: iib.gov.in

A voluntary deductible is indirectly proportionate to your car insurance premium amount. The higher the voluntary deductible, the more the discount you would get on your car insurance premium.

Though, by opting for a high voluntary deductible, you can lower your car insurance premium rates, you would have to pay a huge amount from your pocket at the time of claim. Therefore, be vigilant while choosing the deductible.

A quick look at the differences between a compulsory and voluntary deductible-

Compulsory Deductible Voluntary Deductible
It is a fixed amount decides by the car insurance company and needs to be paid by the policyholder. It is an amount which is chosen by the policyholder at his or her discretion.
No impact on the premium. A high deductible amount lowers the premium and vice versa.
At the time of claim, the only compulsory deductible is required to be paid, which is low. At the time of claim, a policyholder needs to pay both compulsory and voluntary deductible before the car insurer settles the remaining claim amount.

 

Who Should Go for High Voluntary Deductible?

If you are a careful driver with a good income, you can go for high voluntary deductible and get low premium. However, if you drive rashly, either restrict your voluntary deductible to a low limit or avoid it entirely. In any case, compute the amount that you would have to pay at the time of claim and compare it with the amount that you would be able to save by increasing deductible limit. As per your requirements, you can customise your car insurance policy.

Importance of Deductibles in a Car Insurance Policy in India

Deductibles form a crucial part of the car insurance policy and are offered to curtail the incidences of the claim. When a policyholder approaches the insurer for the claim settlement, he/she would have to bear a certain portion of the claim as well and therefore, he/she would stay away from approaching the insurer for every single claim. It will encourage the person to drive safely and avoid accidents.

If a policyholder opts for a high voluntary deductible, he/she will be able to lower the premium rates, but would have to share the costs at the time of claim. So, choose a voluntary deductible limit carefully.

Conclusion

While buying a car insurance policy, make sure to have a complete knowledge about deductibles to make a wise choice.

elishkiya
By elishkiya October 3, 2016 11:17 Updated