One of the most common questions that come to your mind when purchasing a car insurance policy is, “What is voluntary deductible in car insurance?”
Voluntary deductible in car insurance is the amount you agree to pay out-of-pocket in the event of a claim before the insurer covers the remaining applicable expenses. It is different from the compulsory deductible and offers options to reduce your car insurance premium.
In this blog, we will discuss what a voluntary deductible in car insurance means, how it works and its benefits in detail. Before we start, let us understand the concept of deductibles in car insurance.
What is a Deductible in Car Insurance?
A deductible in car insurance refers to the amount you have to pay out-of-pocket when you file a claim. It depends on the type of deductible and can be a specific amount or a percentage of the claim.
A deductible in car insurance is categorised into two types: voluntary deductible and compulsory deductible.
What is Voluntary Deduction in Car Insurance?
A voluntary deductible in car insurance is the amount you choose at the time of policy inception and represents what you agree to pay out-of-pocket in the event of a claim.
It has to be paid in addition to the compulsory deductible and before the insurer contributes to the rest of the claim value.
Choosing a higher voluntary deductible means that you are willing to take greater financial responsibility during a claim. However, it can significantly reduce your premium and make it a cost-effective option.
A voluntary deductible in car insurance applies only to own-damage and
comprehensive car insurance plans and cannot be opted for in third-party car insurance policies.
What is Compulsory Deductible in Car Insurance?
A compulsory deductible in car insurance is the fixed amount you are mandated to pay out-of-pocket when raising a claim. This deductible is based on the vehicle’s engine cubic capacity and set by the IRDAI (Insurance Regulatory and Development Authority of India). It is subject to revisions.
Currently, the compulsory deductible in car insurance is as follows:
Engine Cubic Capacity |
Compulsory Deductible |
Cars up to 1,500 cc | ₹1,000 |
Cars above 1,500 cc | ₹2,000 |
Also Read:
Compulsory vs Voluntary Deductibles
The insurance provider can also impose additional charges over and above the compulsory deductible for older cars or cars with a higher frequency of claims.
How Does the Voluntary Deductible in Car Insurance Work?
Let us consider an example to understand how the voluntary deductible in car insurance works.
Mr Sujay purchases a car insurance policy for his brand-new Hyundai Creta (Engine Capacity - 1497 cc) with a voluntary deductible of ₹4,000. He recently met with an accident and incurred repair expenses of about ₹19,000.
His total out-of-pocket expenses will be as follows:
Particulars |
Amount |
Total claim amount | ₹19,000 |
Compulsory deductible | ₹1,000 |
Voluntary deductible | ₹5,000 |
Total out-of-pocket expenses | ₹6,000 |
Benefits of Voluntary Deductible in Car Insurance
Helps in reducing the premium cost
You can avail yourself of discounts on your car insurance premium if you opt for a voluntary deductible while buying the policy. A Voluntary deductible is a minimum amount that you choose to pay from the claim amount.
The higher the deductible amount, the lower your insurance premium.
The voluntary deductible and the discount on the premium given are as follows:
Voluntary Deductible |
Discount applicable to OD (Own Damage) Premium |
₹2,500 | 20% up to a maximum of ₹750 |
₹5,000 | 25% up to a maximum of ₹1,500 |
₹7,500 | 30% up to a maximum of ₹2,000 |
₹15,000 | 35% up to a maximum of ₹2,500 |
Encourages safe driving
When you opt for a higher deductible, you will be liable to pay a higher proportion of the claim. This factor will encourage you to drive more cautiously, reducing the likelihood of accidents and subsequent claims.
Introduces flexibility in managing expenses
The voluntary deductible in car insurance allows you to choose the contribution based on your financial condition and potential risks, introducing flexibility in managing expenses.
When Should You Opt for a Higher Voluntary Deductible in Car Insurance
If you are an excellent driver
If you are confident in your driving skills and have a clean driving record, you are less likely to be involved in an accident. In this scenario, opting for a higher voluntary deductible in car insurance is beneficial, as the likelihood of filing a claim is significantly reduced.
If you are not living in an accident-prone zone
If you are living in a traffic-free zone where minimal accidents occur, you are again less likely to file a claim. And opting for a higher voluntary deductible in such a scenario can prove to be advantageous.
Factors to Consider While Opting for a Higher Voluntary Deductible in Car Insurance
Affordability
While opting for a higher voluntary deductible in car insurance, it is imperative to assess whether you can afford the increased out-of-pocket expenses during a claim.
Carefully evaluate your financial condition to ensure you are prepared for these unexpected costs without disrupting your financial stability.
Potential Savings
It is always important to weigh the potential savings against the risk of paying a higher amount during claims.
For example, the premium for older vehicles can be higher in specific circumstances, such as when the cost of consumables is not covered.
In such cases, choosing a higher voluntary deductible may not significantly impact on the potential premium savings.
5 Common Misunderstandings About Voluntary Deductible in Car Insurance
Additional Expense
Some of you might consider a voluntary deductible an additional expense in addition to the premium. However, it is an optional feature that can never be forced.
Unwanted Investment
A higher deductible is sometimes viewed as an unwanted investment. However, if managed wisely, it can significantly reduce the premium, leading to long-term savings and financial benefits. Also, the amount has to be paid only when you make a claim.
Co-payment vs. Voluntary Deductibles
Policyholders usually get confused between the concepts of co-payment and voluntary deductibles. However, there is a considerable difference between these two clauses.
The voluntary deductible is decided upon during policy inception and is paid first when you file a claim. Once this has been done, the insurance company settles the remaining amount.
In the case of co-payment, the final claim amount is split between you and the insurance provider according to the percentage agreed upon and specified in the car insurance policy.
Same as No-Claim Bonus
A voluntary deductible is usually confused with a No-Claim Bonus. A No-Claim Bonus is a reward that you get when you have not filed any claims in the previous year. Additionally, the discount keeps on increasing with subsequent claim-free years.
On the other hand, the voluntary deductible in car insurance is allowed only once, which is at the time of policy purchase.
Compulsory Deductible is eliminated when you opt for a Voluntary Deductible
Compulsory deductible has to be paid regardless of the choice of opting for voluntary deductible in car insurance. In the event of a car insurance claim, you have to pay the sum of both compulsory and voluntary deductibles.
Wrapping Up
The voluntary deductible in car insurance is the amount you choose to pay in the event of an insurance claim. It is in addition to the compulsory deductible and must be paid before the insurer covers the remaining expenses.
A voluntary deductible in car insurance can lead to substantial discounts. The higher the voluntary deductible, the greater the premium discounts.
However, before choosing a higher voluntary deductible, evaluate your financial situation and ensure that it is affordable when filing a claim under unexpected circumstances. It is also imperative that you understand the clauses included in your
car insurance policy and make an informed decision to avoid hassles during claims.
Frequently Asked Questions
1.Can I change the voluntary deductible on my car insurance policy after I make a claim?
No, the voluntary deductible can be chosen at the time of policy inception or during renewals and cannot be changed at any time during the policy year.
2. How does a higher voluntary deductible affect the claim settlement process?
When you have opted for a higher deductible, you are responsible for paying the amount during the claim before the insurer. Therefore, your insurance provider will settle the claim only after you have made the payment for the applicable voluntary deductible.
3. Are there any risks associated with opting for a higher voluntary deductible?
The only risk of opting for a higher voluntary deductible is the increased out-of-pocket expense. Always ensure that you opt for a voluntary deductible that you can afford to pay during unexpected claim scenarios.