What is voluntary deductible in car insurance?

Voluntary deductible is a common used car insurance terminology. It is the amount that the insured individual agrees to pay for future repairs of his car, in the event of a crash. It is mandatory for the policyholder to pay the amount before the insurer contributes to the rest of the claim value. Apart from the voluntary deductible, the insured also part pays for a compulsory deductible, which provides to a greater extent at the time of a claim.

Compulsory Deductible is also known as Compulsory Excess in motor insurance. It is the part of the claim amount which you will have to bear out of your pocket. The amount is decided by the Insurance Regulator.

  • For cars not exceeding 1500 cc, the amount is fixed as Rs. 1,000
  • For cars exceeding 1500 cc, the amount is fixed as Rs. 2,000
  • For two wheelers, the amount is fixed at Rs. 100

Let me explain this with an example:

If your car is damaged and the total claim amount is Rs. 8,000. In case your vehicle is a 1499 cc vehicle, you will have to bear Rs. 1,000 out of your pocket and only the balance amount of Rs. 7,000 will be paid by the insurance company. This is put in place to discourage small claims and encourage good driving.

Voluntary Deductible is also known as Voluntary excess in motor insurance parlance. This is an amount which one promises to pay in case a claim arises. In return you are offered a discount on your premium. By promising to pay Rs. 3000 you may get a discount of 15-20% on the own damage component of your premium. 

In the above example, if you had opted for a Voluntary Deductible of Rs. 3000 you would have to pay Rs. 1,000 and Compulsory Deductible and Rs.3000 and Voluntary Deductible. Hence the payout received by you would be Rs. 4,000 (Rs. 8,000 – 1,000 – 3000). This is useful for those who are relatively sure of not making claims and hence can save on the overall premiums. If you are a careful driver and don’t have a history of not making claims, this can work to your advantage in terms of lower premiums.

You can avail discounts on your car insurance premium in case you have opted for a voluntary deductible at the time of buying the policy. A Voluntary deductible is a minimum amount that you choose to pay from the claim amount. The higher the deductible amount, the lower is your insurance premium.

Important facts about voluntary deductibles

Unwanted investment 

Some think that voluntary deductibles are useless, especially being a skilled driver. But you never know what can happen on the roads . An experienced driver would feel hesitant to pay upfront for a future mishap when he is already careful on the streets. However, the upfront payment can be valuable for a skilled/new driver equally. There are several benefits of voluntary deductibles in the long run.

Co-pay vs. Voluntary deductibles 

Policyholders usually get confused between the concepts of Co-pay and voluntary deductibles. However, there is a considerable difference between these two clauses. The difference depends on how the car owner makes the payment. Voluntary deductible is paid first when the policyholder files a claim.

Once this has been done, the insurance company settles the remaining amount. Whereas, in the case of co-payment, the final claim amount is divided between the insurer and the policyholder, as per the percentage agreed upon in the Car insurance policy.

Same as No-Claim Bonus 

Voluntary deductible is usually confused with No-Claim bonus. No-Claim bonus is a reward that the policyholder gets when he does not file any claims in a year. The same amount is discounted from the premium for the following year. Additionally, the discount keeps on increasing with subsequent claim-free years. Moreover, the voluntary deductible is allowed only once, which is at the time of policy purchase.

Since both co-payment and voluntary deductible clauses provide you with discounted premiums, you should opt for these with proper research. You should determine whether you really need to include these in your policy and work out the cost-benefit analysis for the same.

You can make a decision based on your findings. It is also imperative that you understand the clauses included in your car insurance policy. Hence, you should read the policy documents carefully and make an informed decision about add-ons, and avoid hassles during the time of claims.​​

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