Compulsory  Deductible and Voluntary Excess

It has been a greyish area for the policyholders as they think what and why should they choose Compulsory and Voluntary Excess in a Car Insurance Policy and when it should be chosen. Let us understand the same in a step by step manner.

Insurance companies allow their customers to share a part of the risk associated with the policy. Known as the “deductible” or “excess”, this is a pre-determined amount of the claim which would be borne by the insured. So, when the claim arises, the insured would have to pay up this deductible amount from his pocket and the balance amount would be taken care of by the insurance company.

It has been a greyish area for the policyholders as they think what and why should they choose Compulsory and Voluntary Excess in a Car Insurance Policy and when it should be chosen. Let us understand the same in a step by step manner.

Insurance companies allow their customers to share a part of the risk associated with the policy. Known as the “deductible” or “excess”, this is a pre-determined amount of the claim which would be borne by the insured. So, when the claim arises, the insured would have to pay up this deductible amount from his pocket and the balance amount would be taken care of by the insurance company.

There are mainly two types of deductibles – Compulsory & Voluntary.

Meaning of Compulsory Deductible For Car Insurance

The compulsory excess clause is the amount which comes with every policy. Each and every time you make a claim Compulsory deductible or excess for car insurance amount mandatorily subtracted by insurance companies So there is as no choice here. It is a fixed amount which depends on the type of vehicle. Claims are paid out only after deducting it.

Voluntary Excess

The payment of voluntary excess is optional whereas compulsory excess is mandatory. Voluntary excess can be opted for your car over and above the compulsory excess. It is that deductible which you are willing to voluntarily bear.

TYPE OF VEHICLES

COMPULSORY DEDUCTIBLE

Private vehicles not exceeding 1500cc

Rs.1000/-

Private vehicles exceeding 1500cc

Rs.2000/-

Motorized two-wheelers

Rs.100/-


Why “voluntarily” opt for deductibles?

This is a question which would definitely be arising in many minds. Why should we opt for a voluntary deductible when it is already compulsory excess is mandatory for insurance companies? The reason is simple the voluntary deductibles reduce the amount of premium on the policy. This discount is given on the “Own Damage”  which is part of the premium. The higher the voluntary deductible you opt for, the more is the discount you get on the premium. Compulsory deductibles do not give you any premium discounts.

VOLUNTARY DEDUCTIBLE

DISCOUNT

Rs.2500

20% on the OD Premium of the vehicle, subject to a maximum of Rs.750/-

Rs.5000

25% on the OD Premium of the vehicle, subject to a maximum of Rs.1500/-

Rs.7500

30% on the OD Premium of the vehicle, subject to a maximum of Rs.2000/-

Rs.15000

35% on the OD Premium of the vehicle, subject to a maximum of Rs.2500/-

High Deductibles Means High Out of Pocket Expense

Deductibles play a major role in reducing your premiums. But before making your choice, you need to be a bit cautious out here. Following points should be kept in mind.

1)   You have to make expenses out of your pocket. So, it makes sense, to choose the deductible amount which you can easily afford at any point in time. A high deductible may well fetch you a discount, but it also means you would have to bear a large portion of the claim amount by yourself.

2) Sudden expense and liquidity: Claims can arise suddenly. It can be a disadvantage for a large deductible as the claim should be of a high amount, and liquidity may be a constraint.

Co-payment and Excess- Two Distinct Options

Deductible/excess are different from co-payments as it is another common option offered by the insurance company. The Co-payment is a pre-determined percentage of the claim which is borne by the insurance company whereas a deductible is a fixed amount of money which is paid by the insured. For example,  there would be an agreed percentage such as 10% in case of co-pay.  Supposedly, if there is a claim of Rs. 10,000, then 10% would be paid by the insured i.e. Rs. 1000 which would be paid by the insured and the rest by the insurer. Co-payments are more commonly offered the option in health insurance plans.

Opting for Deductible Should Stem From How Confident you are as a Driver

It may seem to be a tough task settling on the right deductible. The budget for motor insurance premiums and driving profile should be seen to decide the amount of voluntary deductible in the easiest way. These two aspects would serve as an indicator to decide on the deductible.

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