How to use car insurance deductibles to your advantage!

While purchasing a car insurance policy, you would have come across the term "deductible". Read on to find out what it means and how it impacts your coverage.

car insurance deductible

If you are in the process of buying health, motor or some other form of general insurance, you are sure to come across the term ‘deductible’.

This is because, it is an important component of many insurance policies and it is essential that you know everything about it before you make any purchase decisions.

Keeping this in mind, the following article will go over the need-to-know aspects about deductible in motor insurance & explain how you can smartly use it to your advantage.

What is deductible in motor insurance?

As per its simplest description, car insurance deductible is the amount of money that a policyholder has to pay to the insurance company as a part of the claim settlement process.

Basically, in the event of an accident, you need to pay a fixed amount irrespective of the repair costs before the insurance provider starts paying the rest of the bill.

Let’s take an example to better understand the concept:
Mr Bajaj owns a car that meets with a minor accident. He takes his car to the nearest network garage for repairs. The bill comes to Rs. 10,000, and Mr Bajaj has an insurance deductible of Rs. 1,000.
Therefore, in this case, Mr Bajaj will have to bear Rs. 1,000 while his insurance company pays the rest Rs. 9,000.

Why do we have to pay deductible?

Without the concept of deductible, policyholders would make claims for the smallest of damages and the insurance company would be liable to pay!

Therefore, deductible curbs the misuse of policy coverage and ensures policyholders make claims only when absolutely required.
For instance, Mr Bajaj would refrain making a claim if the repair costs are below or a little more than Rs. 1,000. This is because he would either have to cover the repair costs entirely or have to pay a major part of the expenses.

Deductible is of two kinds

Compulsory deductible

As the name suggest, compulsory deductible is mandatory. When you buy the plan, you or the insurance company fix the deductible payable in the event of a claim. For motor insurance policies, it is a fixed amount decided based on the vehicle’s cubic capacity.

Note: Compulsory deductible in motor insurance is only applicable on comprehensive policies and not on third-party policies.

Voluntary deductible

As you may have guessed from the name, a voluntary deductible is determined by the policyholder.
However, it is not a replacement of a compulsory deductible. Opting for a voluntary deductible means you will have to pay an extra amount in addition to the compulsory deductible.
So, in case Mr Bajaj opted for a voluntary deductible of Rs. 1,000 he would have to bear Rs. 2,000 in case of a claim (Rs. 1,000 compulsory deductible + Rs 1,000 voluntary deductible).

Why would I pay voluntary deductible?

Now, considering the fact a motor insurance policy is supposed to reduce the cost of repairs after an accident, you are probably wondering why anyone would voluntarily choose to pay part of their claim amount, right?

Well, it’s simple – when you choose to pay a voluntary deductible, you are sharing the burden of the repair costs with the insurance company.

Therefore, the insurance company is obliged to reduce your premium as well. Considering that accidents & claims are a rare occurrence, you can use voluntary deductible lower the cost of your premium and enjoy yearly savings!

However, one should not choose a voluntary deducible that’s too high – this could defeat the whole purpose of having a motor insurance policy in the first place!

Car insurance deductibles are of great importance in buying motor insurance policies. Hence, you should pay special attention to them. Once you have taken your affordability into account, you can opt for a voluntary deductible and create a better insurance deal for yourself.

The main factor that you need to consider is your cautiousness while driving and your disposable income. If you are doing well in the latter, you can select a higher voluntary deductible and hence, a higher premium discount.

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