What Are Deductibles in a Car Insurance Policy and How Do They Work?

What are the Nuances of Motor Insurance?

There are various factors that you need to consider before you get car insurance. The cost of the policy is one of the factors. It is very convenient to opt for cheaper coverage in the short run; however, you must realize that higher deductible rates mean lower monthly rates. You must be aware of all these charges because they impact the average cost over time.

Each insurance company is different in its policies and packages. You must be aware of the deductibles in each company to decide what suits you the best.

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What are the Deductibles in Car Insurance?

Deductibles are the total sum of the amount you must pay in the case of a claim before the insurance provider covers the outstanding claim value. For instance, suppose you have claimed car insurance for 10,000 Rs, and your insurance policy's deductible value is 2,000 Rs; the insurance company will only provide you 8,000 Rs as the claim settlement. This is what deductibles mean.

Car insurance deductibles can be classified into two broad terms – Compulsory and Voluntary Deductibles.

What are Compulsory Deductibles?

IRDAI makes compulsory deductibles important in a car insurance policy. It is a predetermined amount specified by the IRDAI regulations and established by the auto insurer. The insured vehicle's engine capacity determines this sum. The compulsory deductible amount for private cars of 1500 cc engine capacity and above is 2,000 Rs, while for private automobiles with 1499 cc or lesser engine capacity is 1,000 Rs. However, there is a condition. Your insurance company may raise this compulsory deductible if your vehicle is old. This is because the risk and likelihood of claims are higher depending on the vehicle's age. Due to this, when buying a car insurance policy, ensure you understand the compulsory deductible value for your vehicle.

What are Voluntary Deductibles?

As its name suggests, voluntary deductibles are entirely up to you. This is an amount that needs sincere evaluation and contemplation. As the policyholder, you will be entitled to this amount and the compulsory deductible value. Though the mandatory deductible has zero effect on vehicle insurance premiums, the voluntary deductible does. It is inversely related to the amount of the premium. Deciding this amount is quite a balancing act that considers your expenditure plan, risk awareness, and other relevant elements.

Why are Deductibles Critical?

With the rise in cars and other automobiles in all parts of the country, insurance is only becoming more and more relevant and essential. It covers damages to your vehicle and takes care of you financially in bad situations. The extent of clearance also depends on the kind of policy you choose and the type of vehicle you own.

Compulsory deductibles in auto insurance coverages are to prevent you from making frequent claims against the provider. The compulsory deductible is the sum you should pay toward losses due to damage to the car in a collision before the insurance provider pays any compensation. The compulsory deductible is not included in the insurance premium but is levied as a fee when you make a claim.

You can decide not to claim a voluntary deductible towards the claims of a loss or damage to the vehicle covered in your insurance policy. This implies you approve taking responsibility for only a portion of the total repair or replacement expense on the first occurrence. This amount selected is called the voluntary deductible, sometimes called an alternative deductible. Keeping excess voluntary amounts can aid you in receiving discounts on your premium. The higher voluntary excess you choose, the more it will attract a lower insurance premium from your provider.

Wrapping Up

Regarding car insurance policies, deductibles limit the amount an insured individual can pay per accident or claim. While you cannot change the compulsory deductible sum, you can decide what to do with the voluntary deductible amount. You can even choose to ignore it altogether. The higher the voluntary deductibles, the lower the premium, and vice versa.