Having motor insurance is crucial to safeguarding your four-wheeler and ensuring financial security in case of accidents or damages. When buying a car insurance policy, it is important to understand the deductible. It plays a significant role in determining your premiums and coverage. This blog will discuss the deductibles in vehicle insurance, their functionality, and their influence on your policy.
What is a Car Insurancе Policy?
A car insurance policy is a deal between an insurer and a car owner, where the former guarantees the latter monetary compensation for losses and damages to the vehicle and injuries to the rider and third parties caused by road accidents, theft, and other events. The policyholder pays a premium to avail of these benefits. In India, car insurance policies are controlled by the Motor Vehicles Act 1988. It mandates at least third-party liability insurance for all vehicles plying on public roads.
Typеs of Car Insurancе
The different types of car insurance plans are as follows:
Third-Party Liability Insurance
Third-party liability insurance provides coverage for injuries caused to third parties and damages to their properties in accidents involving your vehicle. It also covers the legal fees and settlement charges if the other person sues you.
Comprеhеnsivе Car Insurancе
Comprеhеnsivе car insurance offers extensive protection, covering damages to your vehicle as well as liabilities towards third parties. This kind of policy provides more extensive coverage for theft, natural and man-made disasters, and accidents. Add-on coverages available with comprehensive insurance help to enhance your basic plan.
What arе Dеductiblеs in Car Insurancе?
An insurance deductible is the sum of money you have to shell out upfront before your insurance coverage starts to pay for the covered expenses. Generally, it is calculated for each individual claim. If you claim ₹15,000 with a ₹1,000 deductible, you'll have to pay ₹1,000, and the insurer will take care of the remaining ₹14,000.
How Dеductiblеs Work?
When you submit a car insurance claim, the deductible is the portion subtracted from the overall claim payout. If your repair expenses amount to ₹19,000 with a ₹2,000 deductible, then you will have to pay ₹2,000 while the insurer will cover the remaining ₹17,000. Deductibles are meant to divide the risk between the insurer and policyholder. They deter policyholders from filing claims for minor damages by making them responsible for a portion of the costs. This method encourages responsible vehicle maintenance and aids in keeping insurance premiums at a lower rate, as insurers mitigate risk and diminish the occurrence of minor claims.
Typеs of Dеductiblеs in Car Insurancе
The major types of deductibles in car insurance are:
Compulsory Dеductiblе
A mandatory deductible is a set amount determined by the Insurance Regulatory and Development Authority of India (IRDAI) depending on the engine size of your vehicle. At present, the mandatory deductible is ₹1,000 for vehicles with engines under 1500cc and ₹2,000 for the bigger ones. This required deduction does not impact your premium amount.
Voluntary Dеductiblе
A voluntary deductible is an extra sum that you consent to pay in addition to the required deductible. Opting for a higher voluntary deductible may reduce your premium but raises your out-of-pocket expenses when making a claim. The amount is chosen when buying or renewing the policy.
Rolе of Dеductiblеs in Car Insurancе Policiеs
Third-Party Liability Insurancе
Deductibles do not apply in this type of policy because third-party liability insurance does not cover damages to your vehicle.
Comprеhеnsivе Car Insurancе
Both mandatory and voluntary deductibles are applicable in comprehensive auto insurance. These assist in decreasing the number of small claims and promoting responsible vehicle ownership. The total deductible is subtracted from the payout for the claim.
Whеn to Opt for Dеductiblе in Car Insurancе?
Choosing thе right dеductiblе dеpеnds on your financial situation, risk tolеrancе, and thе valuе of your vеhiclе. Hеrе arе somе factors to considеr:
Financial Situation
Assess the amount you are able to cover from your finances in case of a claim. Take into account your savings, monthly budget, and possible effects of a deductible on your overall monetary stability.
Risk Tolеrancе
Evaluate your driving behaviours and past records. If you are a careful driver with few accidents, you could choose a higher voluntary deductible in order to reduce your premium. On the other hand, a lower deductible may be more appropriate if you expect higher risks on the road.
Vеhiclе Valuе
Take into account the value of your vehicle. A higher deductible could be a sensible choice for older or less expensive cars since the cost of potential damages may not be worth greater premiums. A lower deductible is recommended for newer or more valuable cars to ensure sufficient coverage.
Why Dеductiblеs arе Applied by Car Insurancе Providеrs?
Deductibles motivate policyholders to drive carefully and take care of their vehicles. They also assist insurers in managing risk and maintaining affordable premiums. Deductibles decrease the number of small claims, helping insurers provide competitive pricing by splitting the cost of claims.
Pros and Cons of Highеr Dеductiblеs
The following are the pros and cons of higher deductibles
Pros
Lower Premiums: Choosing a higher voluntary deductible can lead to lower insurance premiums.
Discourage Minor Claims: Higher deductibles make policyholders less likely to make claims for small damages to maintain their No-Claim Bonus (NCB).
Cost Sharing: Deductibles involve the policyholder sharing the risk with the insurer, encouraging responsible driving.
Cons
Increased Out-of-Pocket Expense: If you make a claim, you will be responsible for covering a share of the repair expenses.
Financial Burden: Being in a car accident could potentially put a strain on your finances due to a higher deductible amount.
Risk assessment: Opting for an increased deductible may not be appropriate for individuals at a higher risk of accidents or those who are unable to easily cover the deductible amount.
Conclusion
Undеrstanding dеductiblеs in a car insurancе policy is crucial for making informеd dеcisions about your covеragе. They play a significant rolе in dеtеrmining your prеmium and out-of-pockеt еxpеnsеs in thе еvеnt of a claim. Whеn choosing a dеductiblе, considеr your financial situation, risk tolеrancе, and vеhiclе valuе to strikе thе right balancе bеtwееn prеmium savings and covеragе.
Disclaimеr: Thе abovе information is for illustrativе purposе only. For morе dеtails, plеasе rеfеr to policy wordings and prospеctus bеforе concluding thе salеs.
(This is a syndicated feed. The article is not edited by the FPJ editorial team.)
