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Car insurance deductibles and what they mean for you?

08 June 2017
Did you know what car insurance deductibles are? Find out here
 
 

Rajesh Kumar met with a car accident. Luckily, he was not injured. However, damage to his vehicle was quite extensive, and repairs were expected to cost around Rs. 2,000 towards the repairs from his pocket too. 

The news surprised Rajesh. While this wasn’t a big amount, he had assumed that the insurance company would foot the entire bill in case of an accident.  

So why did Rajesh have to pay? 

His agent explained to him that in insurance parlance, this is called deductible 

A deductible is an important feature in every motor insurance policy. It is a small part of the claim amount that the insured has to bear; while the rest is paid for by the insurance company. In this case, Rajesh would pay Rs48,000. 

There are two kinds of deductibles: Voluntary and Compulsory deductibles, and these are applicable only to comprehensive car insurance.   

Compulsory deductible  

deductible is a compulsory aspect of all insurance policiesThe insurance company decides a certain amount that is mandatorily deducted on every claim that you make. Claims are only paid out once this amount has been deducted. As the insured, you don’t really have a choice in the matter.  

Compulsory deductible is a pre-determined amount that is based on the type of vehicle.  

  • Rs 1,000 for private cars with engine capacity not exceeding 1500cc 

  • Rs4,000 instead of Rs. 2,000. 

Why would anyone choose to pay a voluntary deductible?  

The voluntary deductible has its advantages. For one, it lowers your policy premium. It is based on a simple equation; the higher the deductible, the lower your premium. 

A voluntary deductible is a good way to reduce your premium costs and save money. Butensure you select a deductible that you can pay without it affecting your financial situation 

Why do insurance companies charge a deductible? 

Insurance companies charge a deductible to reduce the risk of loss. A car owner with insurance is more likely to be reckless with his car. He knows that someone else will bear the costs in case of an accident or damage to the car. But, if he has to bear part of that cost, he is more likely to be careful.  

Additionally, deductibles discourage people from claiming for small repairs and damages. For example, if you have a deductible of Rs3,000.  

So, how do you choose the right deductible? 

If you choose a higher deductible, you can enjoy a lower premium. But that should not be the only reason to select a high deductible. You need to consider other factors as well. These include your income level, monthly expenses, how much you use your car and how often. Take these into consideration when deciding a suitable deductible. 

The bottom line 

Insurance is a service that protects you from financial loss. So, use it in the best possible way and in a responsible manner.

 

Tax Singh

"Tax Fact 9"

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