Voluntary Deductible is a part of the claim that the policyholder opts to pay from his own pocket before raising it to the insurer. It is one of the best ways to reduce your car insurance premium. Let’s clear a few misconceptions about this technical jargon!
Who doesn't like to save money on premiums?
Although there are several ways to save money on insurance premiums, I find voluntary deductible to be one of the best ways to do so.
You must know all the essential facts about voluntary deductible in car insurance to make the best of it.
Voluntary Deductible, in a car insurance, is the volunteered amount that a car owner agrees to pay at the time of claim repairs.
Understanding the basics of Voluntary Deductible
Let's say, you own a Hyundai Active i20 car. The annual premium for a comprehensive policy, for your car, is approx. Rs.10,750.
The total annual premium includes a third party premium and an own damage premium. As per the IRDA, the third party premium for private cars having an engine capacity over and above 1000 cc but not exceeding 1500 cc is Rs. 2,863. Thus, the TP premium is Rs.2,863 and the own damage premium comes out to be approximately is Rs. 7,887.
Let's say, you wish to reduce the annual insurance premium. For which, you decided to opt for a voluntary deductible. After a long thought, you opt for an amount of Rs.2500/- as a voluntary deductible amount. This will bring down your premium by 20% on the own damage premium of the vehicle, subject to a maximum of Rs.750. (Refer the table below)
Since the 20% of own damage premium is far more than the Rs.750, the maximum amount that will be deducted is Rs.750.
The total annual premium that you will be paying is Rs.7,137 + Rs.2,863 = Rs.10,000. And the total saving will be of Rs.750.
This way, with the help of a voluntary deductible, you can reduce the premium amount.
However, there are some misunderstandings around voluntary deductible. Worry no more. I'm going to unravel these common misconceptions. So, stay with me.
Common Misconceptions about Voluntary Deductible
You need to pay the deductible amount first
One needs to pay the agreed amount first, is the most common misconception when it comes to a voluntary deductible. But the truth is, you don't have to pay first. In fact, you don't pay unless you lodge a claim, and it gets approved by an insurance company, in which case, you will be asked to pay the agreed amount. This amount will then be deducted from the total repair cost incurred.
The fact of the matter is, voluntary deductible lowers the insurance premium cost. And only in case of claim, the policyholder needs to shell out, that too, only pre-agreed amount. The amount is pre-decided and depends on the policyholder.
It is same as Co-pay
The other misconception that runs around voluntary deductible is co-pay. Co-pay facilitates the policyholder to share some amount of their claim.
The co-pay amount is predetermined in an insurance policy and ranges between 10 to 25% of the approved claim depending on insurer. Though co-pay is similar to the voluntary deductible, it has a small difference. The difference is the amount to be paid at the time of claim. In co-pay, a percentage of the total claim is borne by the policyholder. However, in case of a voluntary deductible option, it is a pre-fixed amount, which is decided by the policyholder at the time of buying a policy.
Even if the claim is more than Rs.20,000, and you have agreed to pay Rs.2,500 as a voluntary deductible amount, that will be the amount you will be paying, apart from the compulsory deductible. You don't have to worry about the claim amount.
If the claim amount is less than or equivalent to the sum of voluntary and compulsory deductibles, it will refrain policyholder to lodge a claim, as this may result in paying the total claim amount from own pocket. No car owner would want that.
The higher the deductible amount, the better it is
Not always. Yes, it sounds good - the higher, the better. But, let me share a simple case with you that may help to see the other side of this cliché.
Below table shows the amount of discount you will be saving when you opt for a particular voluntary deductible amount.
Voluntary Deductible chart:
|Rs. 2,500||20% on the Own Damage premium of the vehicle, subject to a maximum of Rs. 750|
|Rs. 5,000||25% on the Own Damage premium of the vehicle, subject to a maximum of Rs. 1,500|
|Rs. 7,500||30% on the Own Damage premium of the vehicle, subject to a maximum of Rs. 2,000|
|Rs. 15,000||35% on the Own Damage premium of the vehicle, subject to a maximum of Rs. 2,500|
Let's take a simple case, where the total claim cost is Rs.25,000. This claim amount in itself is huge to shell out from one's pocket.
Let's say, you opted Rs.5000 as a voluntary deductible amount. Thinking, the higher the voluntary deductible, the better.
At the time of claim, you will be paying:
Compulsory Deductible – Rs.1,000/-
Voluntary Deductible – Rs.5,000/-
Of the total claim amount of Rs.25,000, you will pay a minimum of Rs.6,000 from your pocket.
Since there are costs due to the depreciable parts that are not completely paid by an insurance company, you may need to shell out more than Rs.6000.
Suggested Reading: Zero Depreciation add-on cover
It's not always a good idea to opt for the maximum voluntary deductible.
Always opt the amount that you can pay at the time of claim. The purpose is to save money and not the other way round.
One should always opt for a voluntary deductible
Though, it saves money; it is not always advisable to opt for a voluntary deductible.
It depends on how one drives, and of course, the location. If the location where a car owner lives and drives is an accidental prone area, it is better not to opt for a voluntary deductible.
Moreover, if you are not confident about your driving skills or perhaps, know that you aren't a cautious driver, you should not opt for a voluntary deductible.
What car insurance Pundits say, and you must follow
This was introduced with the hope to lower the number of claims. When a policyholder opts for a voluntary deductible, it gives assurance to an insurer that the probability of lodging a claim is far lower than the usual. Opting voluntary deductible also helps in getting approval, if a claim is lodged. Here are a few things to keep in mind:
Only opt an amount what you can pay from your pocket if you end up lodging a claim.
Opt when you are sure about your driving skills.
Don't opt if you drive in an accidental prone are.
Don't opt if you are a reckless driver.
Don't opt if your vehicle age is way too older.
With every annual renewal of policy, voluntary deductible is optional and needs to be opted every time. If the policyholder does not make a claim throughout the tenure, there is no need to shell out money. Thus, you will be saving on premiums.
So, in a nutshell, Voluntary Deductible offers an excellent way to reduce the car insurance premium. And you only pay the agreed amount in case of a claim.