Insurance companies these days are introducing plans that require payment of a portion of the claim amount by the policyholder. These insurance plans are gaining popularity due to the attractive premiums that are offered with it. However, you should be aware of the intricacies of the clauses in such plans to avoid being disappointed at the time of a claim.
Compulsory and Voluntary deductibles
A deductible is a part of the claim that is not covered by the insurer. This amount is usually mentioned in the policy document, and is borne by the policyholder himself.
This amount needs to be paid by the insured before the policy kicks in and compensates him with the remaining claim amount.
Deductibles can be classified into two types:
- Compulsory deductible
Compulsory deductibles are predefined amounts that insurance companies enforce, in association with IRDA guidelines. The amount corresponding to this deductible is identified by multiple factors, including the capacity of the car’s engine. For private cars, the Indian Motor Tariff has some standardised rates for compulsory deductibles, ranging from Rs. 500 to Rs. 2000.
The insurance provider may charge you a higher compulsory deductible if your car is a very old one, it has a higher cubic capacity or in other situations where the risk of claim is relatively higher. The premium will not be lowered for compulsory deductibles, and it is usually calculated based on factors like the IDV of the vehicle, its make, and the model.
- Voluntary deductible
Voluntary deductible is a part of the claim amount that the policyholder pays ahead before it is raised to the insurer. This amount is predefined in the insurance by the policyholder, based on his affordability and risk.
- When you purchase a policy with higher voluntary deductibles, you will need to pay a lower premium. However, it should be noted that when you raise a claim after an accident, you will not be provided 100% of the claim amount.
- In case you do not opt for voluntary deductibles with your car insurance, you will have to bear a higher premium; but you can be assured of a good payout from the insurance provider at the time of a claim.
Key differences between compulsory deductible and voluntary deductible are as shown below:
|Compulsory Deductible||Voluntary Deductible|
|It is a fixed amount decided by the insurance provider||This is an amount chosen by the policyholder and is not mandatory|
|The compulsory deductible does not impact the premium||When a policyholder opts for a higher Voluntary Deductible, his premium will be lower, and vice versa|
|When a claim is raised, the policyholder needs to pay only the compulsory deductible amount, which is usually quite low.||When a claim is raised, the policyholder has to pay both the compulsory deductible amount and the voluntary deductible chosen, the total of which will be a substantial amount|
Why do insurers provide deductibles?
Deductibles are only a part of comprehensive car insurance policies and are offered by insurers to lower the incidence of claims.
When a policyholder files a claim he will have to bear the compulsory deductibles part, which discourages him from raising smaller claims. Higher levels of compulsory deductibles hence, make drivers more cautious on the roads, so as to avoid damages and subsequent claims.
When a policyholder opts for a voluntary deductible, he will benefit from a lower premium, but will have to share the costs at the time of a claim. This encourages him to drive safely, and avoid accidents and resultant claims.
When you purchase an auto insurance policy, you have to make a prudent decision on the voluntary deductibles. If you are a cautious driver with a good disposable income, then you can opt for higher voluntary deductibles to benefit from a lower premium. However, if you are a rash driver it is wise to avoid voluntary deductibles altogether, or limit it to a lower amount.
Effectively, you will need to weigh out the advantages of the reduction in premium with the out-of-pocket expenses that will be borne by you at the time of a claim. Based on your specific need, you can customise your policy to make it work in your favour.
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