Car insurance is all about risk-sharing. When you buy a plan, you transfer the risk of accidents & other perils to the insurance company. Therefore, in case of damages caused due to unfortunate events covered by your plan, the insurance provider will step in and cover a majority of the costs for you.
But, did you know, you share a certain amount of risk with the insurance company as well? That’s right, in case of a claim, you have to first pay a pre-decided amount of the repair costs before the insurance company comes in and covers the rest of the expenses. This amount that you pay is known as deductible and it comes with all car insurance plans.
What is deductible?
You can think of deductible as a threshold that needs to be crossed before the insurance company can start to cover repair costs. Therefore, in case of a claim, the insurance company will only cover amounts that exceed the deductible threshold.
Let’s take an example to better understand the concept. Say Mr. Ahuja has a car insurance plan with a deductible of Rs. 2,000. In case of a claim worth Rs. 12,000 Mr. Ahuja would have to pay the first Rs. 2,000 and the remaining Rs. 10,000 will be paid by the insurance company.
Why do I need to pay a deductible?
It’s simple – without the concept of deductible, policyholders would make claims even for the most minute damages and the insurance provider would be liable to provide compensation every time. Therefore, what deductible does is, it ensures that individuals do not misuse the coverage of their plans and make claims only when it is absolutely required.
Taking the example of Mr. Ahuja, he would refrain from making claim where repair costs would be lower than or around Rs. 2,000. Because, in such cases, he would end up paying more out of his own pocket, whereas the insurance provider’s contribution would be non-existent or extremely minimal.
There are 2 kinds of deductibles:
Compulsory deductible – This deductible amount has to be paid in case of a claim. It is decided based on the cubic capacity of the car. As per regulations set by the IRDAI, if your car’s cubic capacity is less than 1500cc then the deductible will be Rs. 1,000 and if your car has a cubic capacity greater than 1500, then the deductible of your car insurance policy will be Rs. 2,000.
There is also the option of paying voluntary deductible over and above the compulsory contribution. You might wonder why anyone would want to pay more out of their own pocket in case of a claim. Well, the answer is simple – voluntary deductible helps reduce the premium of your plan. The more voluntary deductible you opt for, the lower your premiums are! However, remember to exercise caution when it comes to voluntary deduction – do not set the amount too high, or else you will be left with very costly repair costs in case of a claim.
We hope this article has given you a better understanding of deductible in car insurance. Good luck and drive safe. Remember to always fasten your seat belt while driving.