How does a Deductible Work for Car Insurance?

Car insurance can be a complex topic filled with jargon that can easily leave you feeling confused. One such term you may often come across is 'deductible'. Deductible directly affects your premium and what you would pay out-of-pocket if you make a claim. Hence, it is important to know how a deductible works in car insurance. This blog post will dissect what deductibles in car insurance means, how it operates in India, and what you should consider while choosing your deductible amount.

What is Deductible Car Insurance?

The deductible is the amount that you must pay out of pocket before their policy comes into force. For instance, if your vehicle incurs damages worth ₹20,000 and has a ₹5,000 deductible, then you will pay the initial ₹5,000 with your insurer covering the remaining ₹15,000.

Meaning of Deductible in Car Insurance

A deductible refers to the part of the damages that one pays for himself. It reduces small claims and ensures policyholders claim only big losses hence helping insurers manage risks better.

How Does a Deductible Work for Car Insurance in India?

Types of Deductibles

Compulsory Deductible:

This is a fixed amount set by the insurer that you need to pay. For instance, compulsory excess (i.e Compulsory deductible) for cars with an engine capacity of less than 1500cc is usually ₹1,000 and for above 1500cc it is ₹2,000.

Voluntary Deductible:

This is an additional deductible amount which you choose to pay over and above the compulsory amount. Going for a higher voluntary deductible may reduce your premium but raise your out-of-pocket expenses when claiming.

Impact on Premium

Higher the voluntary deductible, lesser your insurance premium will be. This is because higher voluntary deductible means you are taking on more financial risk. Conversely, opting for a lower voluntary deductible implies higher premiums since the insurer will bear more risk.

When Does One Pay Deductible?

You only pay the deductible when you lodge a claim. If you never file a claim then there’s no need to make any payments at all.

Factors to Consider When Choosing a Deductible

Your Financial Situation

Can you afford to pay a higher deductible if you need to make a claim? If not, you may prefer a lower voluntary deductible even though it means paying a premium little higher.

Your Driving Habits

If you’re a careful driver with a good track record, you might opt for a higher voluntary deductible. However, if you drive frequently, especially in congested and high-risk areas, lower deductibles can make more financial sense for you.

The Value of Your Vehicle

If you own an older car with a lower market value and make sure of driving your vehicle less or accident free, setting a higher voluntary deductible can make financial sense.

Frequency of Claims

If you think that you’re likely to make claims, you might save money in the long run by accepting only the compulsory deductible which comes by design of the product.

Tips for Managing Your Deductible

Choosing the right deductible is just the first step. How you manage it over time can make a big difference in your overall car insurance experience.

Set Up a Deductible Fund

Why It’s Important:

Since a deductible represents the amount you’ll need to pay out-of-pocket in the event of a claim, it’s wise to be financially prepared. Consider setting aside a small fund specifically for this purpose. By saving a little each month, you’ll build a safety net that can cover the deductible if you ever need to make a claim.

How to Do It:

You can open a separate savings account or keep a portion of your emergency fund aside for your deductible. This way, if an accident occurs, you won’t be caught off guard financially.

Review Your Deductible Regularly

Why It’s Important:

Your financial situation, driving habits, or the value of your vehicle can change over time. What worked for you a few years ago might not be the best option now.

How to Do It:

Review your insurance policy annually or during renewal time to ensure your deductible aligns with your current needs. If you’ve become a more confident driver, you might consider raising your deductible to save on premiums. Conversely, if your financial situation has changed, lowering the deductible could provide more security.

Understand the Impact on Claims

Why It’s Important:

Knowing how your deductible impacts the claims process helps you make informed decisions about when to file a claim.

How to Do It:

Only file claims when necessary. For minor damages that cost less than or slightly more than your deductible, it might be better to pay out-of-pocket rather than filing a claim, which could increase your future premiums.

Leverage Your No-Claims Bonus

Why It’s Important:

A no-claims bonus can significantly reduce your premium, so it’s worth maintaining a good driving record.

How to Do It:

Avoid unnecessary claims and practice safe driving to keep your no-claims bonus intact. Over time, this can compensate for the higher deductible you might choose, balancing out your overall costs.

Conclusion

Understanding how a deductible works for car insurance in India is essential for making informed decisions about your coverage. The deductible you choose will significantly impact both your annual premiums and the costs you’ll incur if you need to file a claim. By considering your financial situation, driving habits, and the value of your vehicle, you can choose a deductible that balances affordability with peace of mind. While it’s tempting to opt for a lower premium, ensure that the deductible you choose won’t strain your finances in the event of an accident.