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Misunderstanding Your Voluntary Deductible in Car Insurance

Aniket Thakkar Aniket Thakkar 14 March 2016

Electing Voluntary Deductible is one of the best ways to bring down your car insurance premium significantly. But the question is, is it really worth it?

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Voluntary Deductible, in a car insurance, is the amount that the car owner agrees to pay towards any future repairs of his car, if it meets with an accident. It is generally deposited at the time of paying the annual insurance premium, and is later settled if the car meets any accident. The voluntary deductible amount is added on to the compulsory deductible which is generally added in advance along with the premium.

  • Voluntary Deductible in a nut shell: Considering you opt for an annual insurance for your car, and your policy is 1,000 rupees. Further to it you add a voluntary deductible of 1,000 rupees that shall be your investment towards the repairs of your car. The remaining amount as per the insurance scheme would be covered by the insurer. The more you offer the voluntary deductible, the more you get a discount on your annual insurance premium.

  • Misunderstandings with Voluntary Deductible: Though it is a simple concept of paying your accidental repair costs, but along with it, it takes around confusions and misunderstandings. There are many things that are likely to confuse you with voluntary deductibles.

  • An unknown fear: There is a prime confusion about the amount that one chooses to pay as his voluntary deductible. Usually car owners fear about the extra amount that they choose to add on to their car insurance premiums, considering it as a waste of money. However, it is only in the case when they do not know that hiking up their voluntary deductible would in turn lower their insurance premium cost.

    Vehicle owners also consider it a bluff invest in their accidental probabilities. The first thought that usually strikes them is that it is pointless to pay for accidental claims when they are always cautiously driving. However, again they remain ignorant of the fact that a cautious driver is the most profiting man out of the voluntary deductible policy. With the help of their voluntary deductible they can considerably reduce large chunks on premium costs.

  • Co-pay policy and Voluntary Deductible: Similar to voluntary deductible is co-pay, which also facilitates the policy holder to share some amount of their claim. The co-pay amount is predetermined in an insurance policy and generally ranges between 10 to 25% of the approved claim. Considering for a claim of 1 lakh rupees, the policyholder agrees to co-pay 10,000 rupees then at the time of accident the remaining 90,000 shall be covered by the insurer.

    Though co-pay is similar to voluntary deductible, but it has a small difference. In the former the amount is compensated at the time of claim, while in the latter the amount is paid well in advance, which in turn also grants a discount in premium.

  • Not a one time payment: Some policyholders often confuse voluntary deductible to be a one-time payment, while the insurance is needed to be renewed annually. However, voluntary deductible add up annually and are valid up to the term of the insurance only.

  • It is different than a No Claim Bonus: Another most confusing area is the belief that a voluntary deductible is same as a no claim bonus and that it will add up another large chunk of discount to your next premium. No, it isn’t so. Unlike a no claim bonus, which is a bonus for not availing your insurance claim, a voluntary deductible when not availed doesn’t result to any further discounts to your upcoming premium. The benefits of a voluntary deductible are awarded only once, at the time of paying it- by allocating a discount on that annual insurance premium charges.

So, in a nutshell Voluntary Deductible only offers a current discount on the insurance premium, and offers no benefits if not availed.

Aniket Thakkar
Written by Aniket Thakkar
He lives off TV shows, movies, junk food, comics and sarcasm. When he is not working as a freelance imaginary friend to other beings like him, he works as VP of Marketing at Coverfox.