Purchasing a car is a dream for many and also a very much-needed asset. Whether you are planning to buy your first car or looking to upgrade to a better one, you would need to secure it with a valid car insurance policy. As per the Motor Vehicles Act, of 1988, it is mandatory for all cars to have at least third-party insurance. However, just third-party insurance is not enough. In case of a mishap or theft, your car will remain unprotected unless you have a comprehensive car insurance policy that covers your own car damages along with third-party liabilities.
Since comprehensive coverage is more expensive than third-party car insurance, many people opt for more voluntary deductibles to reduce the amount of premium. This means, that the car owner needs to pay more out of pocket in the event of raising a claim. Opting for higher deductibles also motivates the driver to drive more carefully and not file a claim for minor damages.
Understanding deductibles in car insurance
When you file a claim, you do not get a 100% refund since every car insurance has some deductibles. A deductible is an amount that you pay from your pocket when you raise a claim. So, in the event of an accident, for instance, if your car insurance policy has a 10% deductible and you raise a claim of INR 50,000, you will get a settlement of INR 45,000 only. This amount will be either reimbursed or settled directly at the network garage.
Types of deductibles
There are primarily two types of deductibles:
- Compulsory deductibles
This is a fixed amount decided by IRDAI that you have to pay when you raise a claim. The amount of this compulsory deductible in your car insurance varies depending on the car, engine capacity and other factors. This deductible, however, is valid only for comprehensive car insurance policies and does not impact the car insurance premium in any way.
This deductible is not mandatory and you can choose the amount as per your own risk-taking ability and convenience. You can choose a certain amount of deductible at the time of purchasing the policy or choose a percentage of the claim amount. For instance, you can decide to pay 10% of the final claim amount as a deductible. It is important to remember that the deductible you choose will remain constant for the entire policy tenure and you must consider your budget and risk-taking capability before choosing one.
Should you opt for a higher deductible in your car insurance policy?
When you are ready to buy a car insurance policy, the premium you have to pay is the biggest deciding factor. Getting adequate coverage at an affordable premium is crucial when you are choosing an insurance policy. Choosing a higher voluntary deductible is an easy way to lower your premium, yet get all the benefits of your choice of policy.
When to consider a higher deductible in car insurance
Listed below are the two main conditions when you should consider paying a high deductible
- You are confident about your driving: If you think you are a skilled driver and always alert and cautious on the road, your chances of getting involved in an accident are much less and so are the chances of you making a claim. Choosing a higher percentage of deductible is a good idea in this case and lowers your premium.
- You live and drive in a safe locality: If you live in a locality that has a very less population and an excellent roadway, you may consider choosing a higher deductible since the chances of an accident are relatively lower.
When should you not increase your deductibles?
There are certain situations when opting for a high deductible might not be a great idea:
- You cannot afford a high deductible: You should choose a higher deductible in car insurance if you have the spending capacity to pay that. So, if you are unsure if you will be able to pay the amount, do not opt for it just to reduce your premium amount.
- If you are an inexperienced driver: If you do not have enough driving experience or are a reckless driver, your chances of getting involved in an accident and raising a claim are higher. In such cases, it is better to pay a higher premium rather than opting for a higher deductible amount.
- If you live in an accident-prone area: If you are living in an area that has a higher rate of accidents, such as high-traffic roads, major highways etc, the chances of being involved in an accident are much high. This means that you will have more chances of filing a claim and hence, it is better to stick to only mandatory deductibles.
How does a car insurance deductible impact you?
Choosing a higher deductible has the benefit of significantly reducing your premium. Besides that, it also motivates you to drive better, which can lead to a claim-free year. This will also secure your no claim bonus too, helping you save extra.
But, you must also remember that you would need to pay out of your own pocket for every claim you file. While you will be saving on the car insurance premium, and hopefully through no claim bonus too, the decision to choose or not to choose a voluntary deductible will vary on your own situation and capacity.
While a higher deductible in car insurance is a good way to save on premiums and yet get all the benefits of the policy, it should be done only when you have lower chances of raising any claims during the year. Remember to increase your voluntary deductible in car insurance to only the amount that you are sure you will be able to afford as you are not allowed to back out later.
Disclaimer – The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.