What are compulsory and voluntary deductibles in a new car insurance policy?

There are a lot of features in insurance that are important. People are under the misconception that if a premium amount is paid, the insurance company would automatically provide the insurance claim amount. In a car insurance policy, there is a feature called a ‘deductible’ that plays a very important role in the policy. Read further to understand what this is in detail.

What Are Deductibles in Car Insurance?

A ‘deductibles’ is an amount the policyholder must pay when a claim is raised. It is after this amount is paid that the insurance company will provide the sum assured to settle the claim

Types of Deductibles

Compulsory Deductible

The Insurance Regulatory and Development Authority of India (IRDAI) has made compulsory deductibles mandatory. The insurance companies have a fixed amount set as per the IRDAI directives. The amount depends on the engine capacity. For instance, deductibles for cars less than 1500cc is Rs.1000 and those above 1500cc is Rs.2000. While insurance companies follow the IRDAI directives, there are chances that they might increase the deductible amount for older cars, cars with higher cubic capacities or cars with very high claim amounts. The policyholder must pay the amount declared by the insurance company and one cannot reduce this amount

Voluntary Deductible

As the name suggests, this is an optional deductible that the policyholder can opt to pay. This is an additional amount to the compulsory deductible that one can choose to pay. While the compulsory deductible does not affect the insurance premium of the car insurance, the voluntary deductible does. Choosing to pay a voluntary deductible can decrease the premium rate since this is inversely proportional to the premium amount. One must decide this amount after considering affordability, risk, exposure, and other required factors. If one is an experienced driver and drives safely, there is very less risk involved and they can choose a higher voluntary deductible to save on the insurance premium amount

Basic Difference Between Compulsory Deductible and Voluntary Deductible

Why Are Deductibles Important?

– To lower the incidence of claims

– Compulsory deductibles discourage policyholders from making petty claims. If the repair costs less than the compulsory deductible, one would not receive the claim amount and they would unnecessarily lose their No Claim Bonus

– Voluntary deductibles ensure that policyholders do not raise fraudulent claims. Since they must share the expenses, they would avoid raising petty claims as well

– High deductible encourages the driver to drive cautiously

Deductibles are a way of making the policyholder feel responsible while making claims. One can consider paying voluntary deductibles if they are a confident driver and can save a considerable amount on insurance premiums.