How motor insurance deductibles work

For every vehicle owner, a third-party liability insurance under motor insurance is mandatory in India. However, for an inclusive coverage, that offers protection for damages other than third party damage such as theft, fire, floods and the like, an all-comprehensive coverage policy is highly recommended. The first thing that comes to mind is the “premium” for this transition of only liability insurance to a comprehensive insurance for your vehicle. But here’s one way how you can control the premium, i.e voluntary deductible.

What is

Simply put, a deductible is the expense you pay out of your pocket at the time of claim. There are two components of a motor insurance deductible: compulsory and voluntary deductible. As is apparent from the category names, the compulsory deductible, is the one which is mandated in every claim as per regulation. For four wheelers with less than or equal to 1500 cubic capacity this amount is ₹1,000, whereas for vehicles greater than 1500 cubic capacity, it is ₹2,000. Over and above this, you can choose to pay a voluntary deductible, depending upon your own assessment of risk or confidence as a driver.

The need

As vehicle owner you may wonder the need of a voluntary deductible, when there is already a compulsory deductible as stipulated by the regulator, IRDAI. Firstly, opting a voluntary deductible serves as an incentive to the policyholder to be more vigilant about the upkeep and handling of the car, as there is higher financial onus involved. Secondly, it discourages policyholder for filing small claims thus helping them save on the overhead expenses involved in claim.

Claim, premium impact

Let’s say, your vehicle is below 1500 cubic capacity and you choose to set the voluntary deductible amount at ₹5,000, and the damages are evaluated to be ₹25,000, the insurer will pay you only ₹19,000 (₹25,000 minus ₹1,000 compulsory deductible minus ₹5,000 voluntary deductible). It is important for a policyholder to bear in mind, that the deductible amount is applicable each time you make a claim on your vehicle and should not be confused as a one-time payment. It is thus evident, that the higher the voluntary quotient of motor insurance the lesser will be your premium. This is because you are agreeing to make a higher financial commitment in the event of a claim.

How to decide

A higher deductible means higher-out of pocket expenses in case of a claim. Thus, it is prudent to opt for a higher voluntary deductible only if you think you have the financial buffer to account for such costs and are looking to save money on premium. However, discount on premiums should not be the only factor to be considered while choosing a voluntary deductible, but it is important. .

The author is Head – Underwriting, SBI General Insurance

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