Know Compulsory and Voluntary Deductible In Car Insurance
Deductible in Car Insurance - Car insurance is a mandatory piece of document required for all vehicles plying on Indian roads. The Indian Motor Tariff Act 2002 mandates it for every car owner to have at least a third party car insurance. Having a car insurance policy ensures financial stability during a car crash or any car breakdowns. Insurance companies authorize their customers to share and pay a part of the risk attached with an insurance policy. This is known as deductibles. Deductibles have a huge impact when processing claim settlement.
Let’s discuss this component in detail.
What are Deductibles in Car Insurance?
A car insurance deductible is the sum of money that is paid by the car owner for repairs along with the insurance claim amount. Deductibles in car insurance is a contribution made by the policyholder during a claim settlement. When the claim is acknowledged by the insurance company, it generally pays the major part of the claim amount. However, the policyholder will need to pay a deductible amount and it is mandatory for all insurance claims. Deductibles aim to reduce the number of claims raised by policyholders.
Types of Deductible in Car Insurance Plan
There are two types of deductibles in a car insurance policy namely Compulsory Deductible and Voluntary Deductible.
- Compulsory Deductible - A compulsory deductible requires the deductible amount to be paid as per the car’s cubic capacity and is not limited to the insurance of the vehicle. The premium rate is not affected by a compulsory deductible. And when a claim is raised only the compulsory deductible is charged, which is considerably low. The amount of compulsory deductible stands at Rs. 1,000 if the car’s cubic capacity is below 1500CC, and at Rs. 2,000 if the cubic capacity of the car’s engine exceeds 1500CC.
- Voluntary Deductible - A voluntary deductible is fixed by the policyholder, and the deductible amount can be fixed at higher amounts as per the policyholder while purchasing the insurance policy. Paying a high amount of voluntary deductible will lead to lower claim amount during damage claims. Always set an affordable limit of the voluntary deductible.
Why is it Not Recommended To Choose Voluntary Deductibles?
A voluntary deductible is not preferred because, during the time of a claim, the policyholder will have to pay both voluntary and compulsory deductible, thereby reducing the claim amount. A voluntary deductible allows you to enjoy a discount on your car insurance premium but in return takes away a good portion of your claim amount.
A compulsory deductible is necessary for all insurance policies and does not permit discounted pricing. It has really low nominal fee for the compulsory deduction. On the other hand, voluntary deductibles are purely optional and allow discounted pricing and lower premium pay.
Thus, you should always opt for a deductible amount which could be easily afforded by you at any point in time. Higher deductible allows more discounted premium pricing, but it also means that a significant part of the claim will be incurred by you, and the rest will be taken care of by the insurance company.
Role of Compulsory Deductibles in Types of Car Insurance Policies
Deductibles are only provided in comprehensive insurance plans to lower the incidence of claims. Policyholders refrain from raising smaller claims as they will be required to pay a part of the claim amount themselves. If a higher level of compulsory deductible is acquired, it encourages drivers to drive cautiously and avoid small claims.
A voluntary deductible ensures lower premium rates and helps avoid claims by sharing the costs.
The cost of vehicle insurance does not reduce in a compulsory deduction, but in a voluntary deduction, the cost of vehicle insurance is reduced.
Compared to a third party liability policy, a comprehensive policy offers a wider range of financial protection against accidents and thefts, however, upon renewal of the car insurance premium may rise if claims have been generated for minor damages.
Before buying an insurance policy, always be confident on the type of coverage you require and the type of deductible you want to acquire. Always be sure that the chosen deductible will not hamper the claim settlement in case of an accident.
Compulsory deductibles are charged at around 2% of the total insured amount, but in a voluntary deductible, the percentage is much higher.
For further reading:
Disclaimer: This article is issued in general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.