There is an oft-quoted line that many must be familiar with. After every video or audio advertisement promoting market-linked financial instruments, there is a line cautioning investors. “Investments are subject to market risks. Please read the offer document carefully before investing.” Even though everyone must have heard it several times, it is still parroted. It reminds us of a very important habit that should be inculcated by all—to read every term and condition very carefully when investing or buying a financial instrument. Having motor insurance is mandatory in India, which makes it one of the most popular financial products. Though it is just like every other insurance policy, many people are not aware of the deductible clause in vehicle insurance, which is precisely the reason why investors are repeatedly cautioned. Let us take a detailed look at motor insurance to understand deductibles.
Types of vehicle insurance
There are two major types of motor insurance – third-party and comprehensive insurance.
Third-party liability cover:
Having at least a third-party insurance is compulsory for every vehicle plying on the roads. A vehicle can be a dangerous object for people in its vicinity. Not everyone can be expected to be a responsible driver. If a vehicle owner causes any harm to an innocent commuter, the insurer is liable to pay for the damages. It essentially covers legal and physical damages due to any third-party and the premiums are low.
Comprehensive motor insurance:
Comprehensive insurance not mandatory but it can be voluntarily availed by the vehicle owner. Besides third-party coverage, it provides an all-round coverage, which includes damage to the vehicle in natural or manmade calamities.
It completely depends on the vehicle owner which motor insurance he/she would like to purchase. An important feature to notice is the deductible in a vehicle insurance policy. A deductible is a pre-decided amount that has to be paid by the policyholder before the insurer takes the responsibility of the remaining claim. There are two types of deductibles.
Compulsory Deductible in four wheeler insurance
The compulsory deductible is fixed by the insurer and has to be mandatorily paid by the policyholder. The amount of compulsory deductible largely depends on the risk perception of the vehicle. Old vehicles or cars with higher capacity engines or vehicles with a higher risk will attract a higher compulsory deductible. According to the insurance regulator, the compulsory deductible ranges between Rs 50 for two-wheelers and Rs 500 for four-wheelers. The compulsory deductible does not have any bearing on the premiums of the insurance policy.
As the name suggests, the voluntary deductible is fixed by the insurer in consultation with the policyholder. The limit of the voluntary deductible is chosen considering the paying capacity of the policyholder. Choosing to pay a higher amount from your pocket voluntarily can help in reducing the premium of motor insurance. In case of a claim, you will have to pay voluntary deductible decided by you over the compulsory deductible, pushing the deductible amount higher. You can get Bajaj Allianz Four-Wheeler insurance through Finserv MARKETS with premiums starting at Rs 3127 per year. Vehicle insurance bought on the portal comes with cashless service at over 4000 service centres across the country.
The rationale behind deductibles
Insurers ask for deductibles only in comprehensive policies with an aim to reduce the incidence of claims. Compulsory deductibles act as a deterrent for policyholders to raise smaller claims as a part of it will have to be paid by them. A higher compulsory deductible inculcates traffic discipline and forces drivers to avoid damages.
Voluntary deductibles function in a slightly different way than compulsory deductibles. Insurers provide discounts on premium if a higher voluntary deductible is chosen. It ensures that policyholders avoid claims and when they do, they share the cost, making them more careful. People who are careful drivers and are confident of their driving skills can opt for a higher voluntary deductible to save on premiums.
Deductibles are not a negative feature as is considered by many. Having deductibles fosters an environment of cautious driving, which also increases the safety of other people on the road. At Finserv MARKETS, you can purchase Bajaj Allianz motor insurance online in five simple steps.
Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!