Excess in insurance
We all know the importance of motor insurance. The policy is mandatory by law under the Motor Vehicles Act and failing to present it when asked by a traffic officer can attract hefty fines. On the other hand, comprehensive motor insurance financially protects your vehicle in case of accidents, theft, and loss incurred in man-made and natural disasters.
But did you know that insurers in India let you (the policyholders) pay a part of the compensation? It is often termed as deductibles or excess in motor insurance and is a predetermined amount of the compensation that needs to be borne by you. In other words, when you raise a claim with your insurer, you will be liable to pay the deductible amount from your pocket; while the remaining amount will be taken care of by the insurer.
Consider the following example for a better understanding of excess in Motor Insurance.
Let us assume that you bought a motor insurance plan with a predetermined excess amount of INR 3000. In case you make a claim of INR 8000 on your insurance plan, the insurer will deduct the excess amount (INR 3000) and will settle the remaining INR 5000.
In India, there are two types of excess in motor insurance plans –
Let us understand these two in detail.
Compulsory Deductible in Motor Insurance
As the name suggests, a compulsory deductible is an amount that is mandatorily deducted from your claim compensation amount by the insurer. It is a predetermined amount based on the type of vehicle and needs to be paid by you. Note that the insurer will settle the claims after deducting this amount.
The following table gives you a standard overview of compulsory deductible based on the types of vehicle.
|Vehicle Type||Compulsory Deductible Amount|
|Private vehicles with an engine capacity of less than 1500cc||INR 1000|
|Private vehicles with an engine capacity of more than 1500cc||INR 2000|
|Motorised two-wheelers||INR 100|
Voluntary Deductible in Motor Insurance
Voluntary deductible is an optional choice. You willingly bear the amount from your pocket over and above the compulsory deductible amount. Note that you are liable to pay the compulsory deductible amount and can choose to pay additional with the voluntary deductible.
Why Should you Opt for Voluntary Deductible?
Since insurers are already deducting the compulsory excess, it is obvious to have this question in your mind. Well, the reason is quite simple. Opting for voluntary deductible reduces your premium amount. However, this discount is applicable only for comprehensive motor insurance plans. The higher the voluntary deductible amount is, the lower your premiums will be. Note that compulsory deductible will not offer lowered premiums.
The standard premium discounts applicable to the voluntary deductible is as follows –
|Voluntary Excess||Premiums Discount|
|INR 2500||20% on comprehensive motor insurance premiums|
|INR 5000||25% on comprehensive motor insurance premiums|
|INR 7500||30% on comprehensive motor insurance premiums|
|INR 15,000||35% on comprehensive motor insurance premiums|
High Deductible = High Out of Pocket Expenses
As explained earlier, opting for the voluntary deductible will certainly reduce your motor insurance premiums. However, before you make the decision, there are a few things that you need to keep in mind –
- The amount you choose as voluntary deductible will have to be borne from your pocket. Hence, it is advisable to go for an amount that you can truly afford at any given time.
- Unfortunate events take place anytime and anywhere. This means you have to manage the high deductible amount instantly when needed.
Co-Payment and Deductible
You should know that deductible/excess are different from co-payment in motor insurance. Co-payment is a predetermined percentage of the claim that you need to borne, and deductible is a fixed amount of money that you pay.
For instance, if agreed to co-pay 10% of the claim amount, it means that if the claim amount is INR 10,000, then 10% of it will be INR 1000 that you are liable to pay. The insurer will settle the remaining amount. Also, the co-payment option is commonly available in health insurance plans.
Choosing the correct deductible amount can be a task. One way to decide upon the amount is to understand your motor insurance affordability and your driving skills. These two factors will help you determine the deductible amount to choose when buying motor insurance in India.
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