Everyone would like to purchase the best car insurance with maximum benefits and minimum premiums. Nowadays technology has made it easy to purchase insurance on few clicks.
But there are some insurance terminologies available which make us confuse at some time. Deductibles are also among of these terminologies.
It was introduced in motor insurance with some purpose. It is a very helpful tool for policyholders and companies both.
What is Deductible?
Deductible is also called excess. It is the amount that is paid by the policyholder at the time of the claim. Basically, if you have any deductible option then it means some of the risk has been transferred to you.
When you file any claim then you pay the deductible amount. In other words it is the pre-determined amount of the claim.
You need to pay this at the time of the claim. Some deductibles are optional and some are mandatory in car insurance.
What is the Need of Deductible?
Deductible was introduced in car insurance with specific objectives. The purpose of deductible is to avoid unnecessary claims from policyholders. It also encourages people to good driving habits and handling the car with responsibility.
If people will drive their car with care and responsibility then there will be less chance of accidents.
If the insurance company will deduct some amount as deductible from the final claim amount then you will avoid filing a small claim.
Because you will pay the deductible amount from your pocket and you like to save the money. So, you will not drive rough.
Type of Deductible in Car Insurance
There are two types of deductibles in car insurance. One deductible is fixed by the IRDA and not in your control to select. But the second deductible is in your control and you can select according to your choice and budget.
1- Compulsory Deductible (CD)
The first deductible is called compulsory deductible. It is the fixed amount which you need to pay at the time of claim. This amount is fixed when you purchase your car insurance. This amount is depending on the cubic capacity of your car.
If your car is below 1500 cc then compulsory deductible amount is Rs.1000. It means if you have any car below the cubic capacity of 1500 then you have to pay Rs.1000 mandatory.
If your car is more than 1500 cc then the deductible amount is Rs.2000. It means you have to pay Rs. 2000 at the time of claim as a compulsory amount.
Let’s have better understanding with below example:
Suppose Mr. Shailendra purchase a comprehensive insurance policy for his car. Mr. Shailendra has a Hyundai car with a cubic capacity of 1197. He was going somewhere but his car gets damaged in a road accident.
He filled the claim of Rs.20000. In this case insurance companies will pay the claim after deduction of the compulsory deductible.
|Total Claim amount filled by Mr. Shailendra||Rs. 20000|
|Cubic capacity is below 1500 cc. So compulsory deductible amount||Rs. 1000|
|Total payable claim amount||Rs. 19000 (20000 – 1000)|
2- Voluntary Deductible (VD)
Voluntary deductible, as the name, suggests that you can select this according to your choice. You select this deductible or not it is up to you only. It is not mandatory to select voluntary deductible in your car insurance policy.
This is the over and above compulsory deductible and the amount which you need to pay at the time of claim.
There are various options for voluntary deductibles and totally depending on which amount you select. It helps to reduce your premium. Your insurance premium gets reduced according to the deductible amount you select.
A high amount of deductible means a high reduction in premium and low deductible amount means a low reduction in premium.
Let’s understand with an example
Suppose Mr. Saurabh has a Hyundai car of 1497 cc. He purchases his comprehensive car insurance policy with the voluntary deductible of Rs.2500. After some time he filled the claim of Rs.20000 because his car met in an accident.
|Total claim amount filled by Mr. Saurabh||Rs. 20000|
|Deduction of compulsory deductible amount||Rs. 1000|
|Deduction of Voluntary deductible amount||Rs. 2500|
|Total payable claim amount after deduction of both deductibles||Rs. 16500 (Rs.20000 – Rs.3500)|
Who Should buy Voluntary Deductible?
Should everyone buy a voluntary deductible option? In my opinion, it is not for everyone. As I explained above that whenever you will claim from your insurer then you have to pay a compulsory deductible amount for each claim.
You will also pay a voluntary deductible amount if you have opted it also. Means if you have filed claim multiple times in a policy year then you have to pay deductible multiple times.
In below situation opting voluntary deductible is beneficial:
- Experience driver – if you are an experienced driver means very little chance of a claim. In that case, you have very little chance to pay from your pocket.
- Safe driving – If you are responsible and a good driver then also you have less chance of an accident. It means less chance of a claim.
- Good No Claim Bonus History – if you have a good amount of no claim bonus then it shows that you are not filling a claim.
In the above scenario, you can select voluntary deductible because in these cases there is very little chance of a claim. So, you can opt for this option to reduce your premium.
Should You Really Buy Voluntary Deductible or Not?
Yes of course it is a very beneficial tool but totally depends on case to case also. You should select the amount very wisely because ultimately if you file a claim then you have to pay VD amount from your own pocket.
Avoid this deductible if you have multiple claims in history. You should also avoid if you are living in an accident-prone area. However, you can reduce your car insurance premium by opting for a voluntary deductible.
How Much Voluntary Deductible You Should Select?
If you are a new or inexperienced driver then you should opt low deductible amount. If you have a good track record of no claim bonus or you take claim very rare then you can opt a high amount of deductible.
Risky drivers should not select a voluntary deductibles. or you should select a low amount.