It was a sad day for Mr. Sharma. The final claim settlement letter from his insurance company had left him feeling despondent. Last month, his Toyota Innova met with an accident and the total repair cost was Rs.25,000. As you would expect, he claimed this amount on his car insurance policy and when he received the final claim amount, he was quite dejected.
In the final claim settlement letter, Mr. Sharma couldn’t stop noticing something called Compulsory and Voluntary Deductibles, along with certain non-payable charges like replacement of plastic and fiber components and consumables. While he was aware of the compulsory deductible, he scratched his head to figure out what Voluntary Deductible was all about, as it formed a major chunk of his non-payable charges.
In a jiffy, he recalled his tête-à-tête with the sales agent of his insurance company where the agent had offered to reduce the premium if he opted for a higher Voluntary Deductible. And without giving it a thought or understanding the implications it may have on his claim settlements, Mr. Sharma, in an impulsive desire to slash his insurance premium, had decided to go for the voluntary deductible of Rs. 7,500.
In this article, we will unravel for you the implications of deductibles on your claim settlement plus reveal the impact of opting for a voluntary deductible.
What is Deductible?
Deductible is mainly an amount that one opts to bear in case of a claim before the insurance company pays its share.
There are two types of deductibles in the car insurance policy.
What is Compulsory Deductible?
Compulsory deductible is a set amount determined by the insurance companies in agreement with IRDA guidelines basis the engine capacity of the car. As per the Indian Motor Tariff, the rates given below are standardized for compulsory deductible amount for private cars.
Cars not exceeding 1,500 cc – Rs.1,000
Cars exceeding 1,500 cc – Rs. 2,000
In case of Mr. Sharma, as his Toyota Innova has engine capacity of more than 1,500 cc, he had to bear the cost of Rs. 2,000 in addition to other non-payable charges.
What is Voluntary Deductible?
Voluntary Deductible is a monetary component of your car insurance that is borne by you in case of a claim. If opted, it will substantially reduce the premium. As it is inversely proportional to the premium amount, the higher the amount of voluntary deductible, the lower will be your premium.
Given below is the detailed table demonstrating the impact of voluntary deductible on the insurance premiums:
||20% on the OD premium of the vehicle, subject to a maximum of Rs. 750
||25% on the OD premium of the vehicle, subject to a maximum of Rs. 1,500
||30% on the OD premium of the vehicle, subject to a maximum of Rs. 2,000
||35% on the OD premium of the vehicle, subject to a maximum of Rs. 2,500
To clarify this further, let’s got back to Mr. Sharma’s case to figure out the calculation of his claim.
|Total claim amount raised (A)
|Consumable items and other non-payable items (B)
|Compulsory deductible (C)
|Voluntary deductible (D)
|Total claim amount payable A – (B+C+D)
As per above computation, the total amount paid by the insurance company to Mr. Sharma is Rs. 10,500, while the balance amount of Rs. 14,500 of the repair cost has to be borne by Mr. Sharma.
Now, imagine a situation where the total amount of Mr. Sharma’s car repair was Rs.14,000. In that case, the insurance company would not be liable to pay any claim reimbursement to Mr. Sharma since the total of non-payable items and deductibles amount to Rs. 14,500. Due to this, Mr. Sharma would have to bear the total cost of repairs himself, regardless of the premium paid by him towards his car insurance policy.
Taking into account the total repair costs of Rs. 25,000, getting reimbursed just Rs. 10,500 is undeniably not a favourable deal for Mr. Sharma. While it is a good idea to opt for voluntary deductible to save cost on your car insurance premium, it is desirable to evaluate the financial impact it may have while making a claim. The higher the voluntary deductible you opt for, the bigger the holes you'll be digging into your pocket when you raise the claim, thereby defeating the very purpose of buying the insurance policy. That's why, evaluating your needs and assessing your capacity to bear the costs of damages while making claims is what you need to consider before opting for voluntary deductible.
And for our dear friend, Mr. Sharma, what can we say? Lessons learnt the hard way!