Compulsory vs Voluntary Deductible in Car Insurance: Meaning and Differences

Car insurance deductibles are of two types: compulsory and voluntary. Knowing the difference between these two is important because it affects how much you will pay from your own pocket during a claim and how much your premium cost will be. Let’s break down how both the deductibles differ and their impact on your claim payout amount.Read more

What is a Compulsory Deductible?

In car insurance, the compulsory deductible is a fixed amount that every policyholder must pay out of pocket every time a claim is raised. This amount is set by the Insurance Regulatory and Development Authority of India (IRDAI) and is same across all car insurance companies.

Compulsory Deductibles Rates in India fixed by IRDAI

The IRDAI has standardised the rates for a compulsory deductible based on the Cubic Capacity (CC) of a private car's engine.

What is a Voluntary Deductible?

A voluntary deductible is an extra amount you choose to pay when making a four-wheeler insurance claim. You can decide this amount based on your risk tolerance and how much you can afford.

• You choose to pay this optional amount yourself during a claim
• Helps reduce your comprehensive car insurance premium
• May increases your out-of-pocket expenses at the time of claim

Difference Between Compulsory and Voluntary Deductibles

Both types of deductibles affect the amount that car insurance companies pay out in a claim. But they work differently. Have a look:

When is the Compulsory Deductible Applicable?

You have to pay the compulsory deductible in the following scenarios:

• Own-Damages Only: The compulsory deductible is applicable when you claim for own-damages only (e.g., accidents, natural disasters, fire, theft, etc.) and not third-party liability claims.
• Every Claim You File: There is not any yearly limit for a compulsory deductible in car insurance. It applies even if you file multiple claims in a policy year.
• Applies Even to Zero Dep Policy: Even if you have a zero depreciation add-on with your comprehensive or own damage car insurance, the compulsory deductible is applied to the final claim payout.

How Do Both Deductibles Work Together?

Having both compulsory and voluntary deductibles with your car insurance impacts how much money you receive during a claim. Let's understand how they work with an example:

When you make a claim, you first pay both deductibles, and your insurer covers the rest.

• Claim amount: Rs. 40,000
• You pay:
• Compulsory Deductible: Rs. 1,000
• Voluntary Deductible: Rs. 4,000
• Total Amount Paid: Rs. 5,000
• Insurer pays: Rs. 35,000

In short, choosing a deductible is a trade-off. A higher risk deductible (more risk) means a lower premium, while a lower deductible amount results in a higher premium but less risk.

When to Opt for a Voluntary Deductible?

Here are the scenarios when you should opt for a voluntary deductible in your car insurance and when you should avoid it:

When to Choose:

• You Have a Clean Driving History: If you drive safely and have a claim-free record, a voluntary deductible can help you save on your premiums, as you are unlikely to pay that extra amount.
• You Want Lower Premiums: A higher voluntary deductible significantly reduces the cost of your comprehensive car insurance upfront.
• You Can Afford Out-of-Pocket Expenses: If you can comfortably pay for repairs from your pocket if a claim occurs, choosing a voluntary deductible is a good option.
• You Live in Low-Risk Areas: If you rarely face traffic congestion or reside in an area that is not prone to accidents, you can safely choose a higher voluntary deductible.
• You Drive Occasionally: A voluntary deductible is beneficial if you rarely drive, as the risk of accidents involving your car is lower.
• You Want to Protect Your NCB: When you choose to pay for small repairs from your pocket, you avoid filing minor claims, which preserves your No Claim Bonus (NCB).

When to Avoid:

• High-Risk Situations: If you drive frequently in heavy traffic, live in accident-prone areas, or have a poor driving record, you should not consider opting for the voluntary deductible with your car insurance.
• Financial Constraints: Avoid voluntary deductibles if paying a higher amount from your pocket in case of a claim would cause financial strain.
• Older Cars: Old cars have a lower market value and, consequently, lower IDV than newer models. Thus, opting for a higher deductible may not provide considerable savings, as the claim payout will be quite small.
• Frequent Claim History: If you are likely to make multiple, small claims, the deductible will be applied to every claim, which will end up costing you more overall.
• New Drivers: Less experienced drivers are more likely to be involved in accidents. Thus, opting for a high deductible financially may not be a good choice.

Conclusion

If you drive carefully and rarely make claims, choosing a voluntary deductible with your car insurance policy can help you save money on your premium. But if you are certain you will make claims often, it's better to keep your deductible amount low so you won't have to pay significantly from your own pocket.