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Voluntary Deductible in Car Insurance

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Deductibles in Car Insurance

Buying car insurance goes hand in hand with buying a car; mandated in India, it provides much-needed protection against unforeseen circumstances. Deductibles or voluntary deductibles are terms that are commonly associated with car insurance. Voluntary deductible in car insurance, meaning the amount that the policyholder has agreed to pay in the event the vehicle gets damaged and requires repairs, is an option provided at the time of policy purchase. This may attract insurers as it can help reduce the premium on the insurance. However, it is important to know the necessary details before opting for voluntary deductible in car insurance.

Types of Deductibles in Car Insurance

Deductibles constitute the amount from the total claim that has to be paid by the insured before the insurer pays the assured amount.

There are two main types of deductibles in car insurance:

  • Compulsory Deductible:

The compulsory deductible is applicable to all policyholders and their vehicles. It is determined based on the four-wheeler’s engine potential. The Indian Motor Vehicle Act provides a basis for setting the rates: they can range from Rs.1000-2000 depending on engine potential.

  • Voluntary Deductible:

The policyholder agrees to pay a certain amount to cover damage repairs from their own pocket, this is known as the voluntary deductible. The higher the voluntary deductible, the lower the premium on car insurance.

What is Voluntary Deductible?

The option of voluntary deductible can be availed at the time of buying car insurance.

In the event of a collision or accident, where the policyholder’s vehicle is damaged, the policy shows that the insured has agreed to pay a certain amount to cover the damages from their own funds. The primary advantage of this is the voluntary deductible discount on premium. The greater the voluntary deductible amount, the greater the discount on the premium. For instance, for a voluntary deductible of Rs. 2500, the discount percentage is typically 20% on the own damage premium, with the upper limit of Rs. 750. For a deductible amount of Rs. 5000, the discount on premium goes up to 25%.

Moreover, some charges such as repairs of plastic or fiber parts, are separate from compulsory or voluntary deductible and are expected to be paid by the insured. Note that a downside of voluntary deductible is the insured having to bear the majority of repair costs, thus defeating the main purpose of buying car insurance.

Common Misunderstandings about Voluntary Deductible

Many people have certain misconceptions about voluntary deductibles; a few common ones are:

  • Pointless investment

Drivers who are confident in their driving skills and do not find future mishaps are very likely, hesitate to go for voluntary deductibles as it may feel like a useless upfront payment. However, the upfront payment can actually be beneficial for experienced as well as new drivers, in case of unexpected accidents or in the form of discounted premium.

  • Conflating Co-pay and Voluntary Deductible

Some may confuse one for the other, but co-pay is different from the voluntary deductible. The former is a division of the final claim amount between the insurer and the insured. Meanwhile the latter is an initial payment made by the insured at the time of filing a claim.

  • No-Claim Bonus is the same as Voluntary Deductible

No-claim bonus sometimes gets confused with the voluntary deductible, as it can also help you get a discount on premium. The no-claim bonus is awarded to the policyholder if they have not filed any claims in a given year, in the form of a discount on premium for the next year. This discount can go on increasing in subsequent years that also have no claims. On the other hand, the voluntary deductible discount is brought into effect only at the time of purchasing the policy.

Conclusion

Thorough research is imperative in order to make an informed decision that will provide you with the best possible protection. Assess your financial status, vehicle features, and the policy clauses, provisions and add-ons before confirming policy purchase. Reading the documents carefully can help you avoid any hitches at the time of filing a claim. While voluntary deductibles have certain advantages, they may also affect the claim settlement procedure adversely. Hence, if you want to ensure that claim settlement goes smoothly, know your priorities and the policy limitations before purchasing one.

FAQs on Voluntary Deductible

  • ✔️What are the two types of deductibles in car insurance?

    The two types are compulsory deductible and voluntary deductible.

  • ✔️What is the main advantage of voluntary deductible?

    The primary advantage of voluntary deductible is the discount on premium.

  • ✔️Is no-claim bonus the same as voluntary deductible?

    No, no-claim bonus is a reward for not filing any claims in a given year.

  • ✔️Is Copay the same as voluntary deductible?

    No, co-pay is the division of total claim amount between insurer and policyholder.

  • ✔️What is the downside of voluntary deductible?

    The downside of voluntary deductible is the insured having to bear the majority of repair costs, thus defeating the main purpose of buying car insurance.