Which is a better idea, opting for a small or large deductible when taking up a car insurance?
A deductible is a part of the claim that is not covered by the insurer. This amount is usually mentioned in the policy document, and is borne by the policyholder himself.
This amount needs to be paid by the insured before the policy kicks in and compensates him with the remaining claim amount.
Deductibles can be classified into two types:
Compulsory deductibles are predefined amounts that insurance companies enforce, in association with IRDA guidelines. The amount corresponding to this deductible is identified by multiple factors, including the capacity of the car’s engine. For private cars, the Indian Motor Tariff has some standardised rates for compulsory deductibles, ranging from Rs. 500 to Rs. 2000.
The insurance provider may charge you a higher compulsory deductible if your car is a very old one, it has a higher cubic capacity or in other situations where the risk of claim is relatively higher. The premium will not be lowered for compulsory deductibles, and it is usually calculated based on factors like the IDV of the vehicle, its make, and the model.
Voluntary deductible - Voluntary deductible is a part of the claim amount that the policyholder pays ahead before it is raised to the insurer. This amount is predefined in the insurance by the policyholder, based on his affordability and risk. When you purchase a policy with higher voluntary deductibles, you will need to pay a lower premium. However, it should be noted that when you raise a claim after an accident, you will not be provided 100% of the claim amount. In case you do not opt for voluntary deductibles with your car insurance, you will have to bear a higher premium; but you can be assured of a good payout from the insurance provider at the time of a claim.
When you purchase an auto insurance policy, you have to make a prudent decision on the voluntary deductibles. If you are a cautious driver with a good disposable income, then you can opt for higher voluntary deductibles to benefit from a lower premium. However, if you are a rash driver it is wise to avoid voluntary deductibles altogether, or limit it to a lower amount.
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