Car ownership is a dream for many, but it comes with the added responsibility of understanding the role and features of a car insurance policy for maximum protection. An integral aspect of this insurance category is car insurance deductibles.
Deductibles in car insurance are the out-of-pocket expenses incurred by an insured before the claim settlement amount kicks in. Deductibles are often considered hidden expenses, but that is not the case.
In this detailed guide, we will discuss deductibles, including the different types and their impact on car insurance claims and premiums.
What are Deductibles in Car Insurance?
A deductible is the amount an insured has to pay in the event of a claim, after which the insurance company settles the remaining claim amount. The Insurance Regulatory and Development Authority of India finalises the amount based on the type of deductible as per the cubic capacity of a car's engine or the insured.
Between third-party and comprehensive car insurance policies, the applicability of deductibles is only limited to comprehensive car insurance plans. This is because
third-party car insurance does not cover any loss or damage incurred by the insured vehicle. In contrast, a comprehensive plan covers all repair expenses in case of loss or damage.
How Do Car Insurance Deductible Amounts Work?
Let's look at an example below to simplify the meaning of car insurance deductibles and how they work.
You have a car insurance policy with a deductible of ₹3,000.
You have filed a claim request for ₹10,000 due to a car accident.
Once the claim is approved, you will only be eligible to receive financial support of ₹7,000 from the insurer as claim settlement.
The remaining ₹3,000 has to be your out-of-pocket expenses.
Types of Car Insurance Deductibles
There are two types of deductibles in car insurance: compulsory and voluntary.
Under the compulsory deductible category, you must pay the pre-decided amount towards repairs at the time of claim settlement. However, under voluntary deductible, you have the flexibility to choose the amount or percentage of deductibles.
Let us look at each of them in detail below.
Compulsory Deductible
The Insurance Regulatory Development Authority of India (IRDAI) mandates the compulsory deductible for car insurance. The insurer sets the deductible as a fixed amount in accordance with the IRDAI directives.
However, the insurer can increase this deductible based on your car's age and usage. One prime reason behind this is the added risks of accidents and the probability of frequent claims for older cars.
Here are the current values for compulsory deductibles in car insurance -
Private Cars of 1500 cc or above - ₹2,000
Private cars of 1499 cc and below - ₹1,000
Voluntary Deductible
The voluntary deductible refers to the optional deductible amount for the insured, which offers the convenience of opting in or out as needed.
You pay this deductible in addition to the compulsory deductible mentioned above. While the compulsory deductible does not affect car premiums, the voluntary deductible has a direct impact on your monthly premiums.
To decide the deductible amount for voluntary deductibles in car insurance, you need to assess your budget, risk exposure, and other associated factors.
For example, for a safe driver with minimal scope of risks, car insurance with a low deductible is recommended. However, if you reside in an accident-prone area with a higher probability of accidents, you can choose a high deductible car insurance.
Difference between Compulsory and Voluntary Deductibles in Car Insurance
Compulsory Deductibles |
Voluntary Deductibles |
The Insurance Regulatory Development Authority of India (IRDAI) mandates the compulsory deductible for car insurance. The insurer sets the deductible as a fixed amount in accordance with the IRDAI directives. Mandatory, as fixed by the IRDAI. | Insured’s choice to opt in. |
It does not impact the premium amount. | It directly affects the monthly premium. Higher deductibles can reduce the monthly premium amount and vice versa. |
For claim settlements, you must pay the compulsory deductible amount. | If you opt-in for voluntary deductibles, you will have to pay both compulsory and voluntary deductible amounts from your pocket during claim settlements. |
Impact of Car Insurance Deductibles
Role of Deductibles in Car Insurance Premiums
The compulsory deductible has no impact on your premium value. Your car insurance premium is only impacted by the voluntary deductible amount, which is based on your decision.
A higher voluntary deductible amount will lower the monthly premium and vice versa. To understand this better, look at the example below.
The monthly premium offered by a car insurance plan is ₹15,000.
Rakesh chose a voluntary deductible amount of ₹1,000, and Amita chose a voluntary deductible amount of ₹3,500.
In this case, as Amita chose a higher deductible of ₹3,500, her premium will be lower, i.e. ₹11,500.
On the other hand, as Rakesh chose a lower deductible amount of ₹1,000, his monthly premium will be higher, i.e. ₹14,000.
Role of Deductibles in Car Insurance Claims
Car insurance claim settlements require a combined effort from the insured and the insurer. You, as the insured, are responsible for covering the compulsory and voluntary deductibles on your own before the insurer covers the remaining expenses for loss or damage repairs.
So, based on the total amount of deductibles in car insurance, your out-of-pocket expenses can increase or decrease during claim settlements.
A higher deductible means a higher repair expense that you need to cover, while a lower deductible provides you with lesser liability for repair expenses during claims.
What is the Best Deductible for Car Insurance?
Car Insurance with Low Deductible | High Deductible Car Insurance |
| PROS |
Reduced out-of-pocket expenses during claims | Lower monthly premiums |
Higher peace of mind as the majority of the expenses are covered by the insurer | Encourages responsible driving |
|
Ideal for drivers with limited financial capacity | Ideal for drivers who have a clear driving history |
|
CONS |
Higher monthly premiums | Requires higher upfront payments during claims |
It might encourage people to make minor claims frequently, which can lead to increased premiums in the future | Not suitable for older cars |
Conclusion
The unpredictability of accidents makes it highly crucial to invest in the right car insurance plan for your vehicle. In addition, choosing the voluntary deductibles in car insurance requires proper assessment for informed decision-making.
Reliance General Insurance offers a range of
car insurance policies, including third-party car insurance, own-damage car insurance, comprehensive car insurance and long-term car insurance.
Based on your voluntary deductible amount as per financial capacity, you can calculate your monthly premium using a
car insurance premium calculator to choose a car insurance plan that aligns with your budget and requirements.
Visit our website and secure your car with the best car insurance!
Frequently Asked Questions
1. What happens if I file a claim but the repair expenses are less than my deductibles?
In such cases, you will be responsible for the entire payment of the car repair expenses, and the insurer will not extend any financial support.
2. Can I opt out of the compulsory deductibles in car insurance?
No, you cannot opt out of compulsory deductibles. The Insurance Regulatory and Development Authority of India mandates compulsory car insurance deductibles, and all insured vehicle owners are required to pay the compulsory deductible when filing a claim.