All You Need to Know About Voluntary Deductibles in Car Insurance

For many car owners, one concept that needs a deeper explanation is voluntary car deductibles. Understanding the concept of deductibles is essential to tailor your Car Insurance policy to suit your needs. 
 
 We’ve created a guide to take you through all the essential things you need to know about voluntary deductibles in Car Insurance. Keep reading to take a step towards making better insurance decisions!

 

What are deductibles?

In the insurance context, a deductible is the amount of money the policyholder pays out of their pocket while the insurance provider covers the rest. It is essentially a cost you pay to be inside the safety net of your insurance policy.
 
 Imagine you’ve bought a new car and have purchased an insurance policy for it with a ₹10,000 deductible. Let us consider that you get into an accident, and the damages to the car will cost ₹50,000 to repair. In this situation, you must pay ₹10,000 upfront because of your deductible. Then your insurance provider will step in and cover the rest.

 

What is voluntary deductible in Car Insurance?

A voluntary deductible in Car Insurance is when you pay an extra amount in addition to the compulsory deductible for damages costs you claim. When you pay a higher portion of the costs, the premium you pay on your insurance policy reduces. In other words, the higher your voluntary deductible, the lower the insurance premium.

 

Difference between compulsory and voluntary deductibles in insurance

Before we list the differences between compulsory and voluntary deductibles, let us go through what each means.

• A compulsory deductible is the fixed amount you should pay in case of a claim, before your insurance provider steps in and covers the rest of the cost. Your insurance policy mandates this, and you must pay it no matter what voluntary deductible you choose. You can think of it as a fee to access your insurance coverage in case of damages or accidents.

 

• A voluntary deductible is an additional amount paid on top of the compulsory deductible. It is up to you to decide the voluntary deductible amount. If you pay a higher voluntary deductible, you can significantly reduce the premium for your Car Insurance policy. However, this means that your insurance policy will not cover the total cost of your damages, and you will spend more out of pocket.

Let us compare and contrast the differences between compulsory and voluntary deductibles in a more detailed way:

 

Criteria	Compulsory Deductible	Voluntary Deductible
Definition	A fixed amount you must pay upfront before the insurance covers any claim.	An extra amount you choose to pay on top of the compulsory deductible, to reduce your premium.
Determined by	In India, the compulsory deductible amount varies based on the car engine capacity and is determined by the Insurance Regulatory and Development Authority of India (IRDAI).	The policyholder determines the amount they pay on top of the compulsory deductible, based on their preference.
Impact on premium	This is a mandatory charge and does not affect the premium.	The higher your voluntary deductible, the lower the amount you pay as the premium.
Purpose	This serves the purpose of ensuring the responsibility from the stakeholder in case of a claim.	This lets policyholders reduce the amount they pay as the premium by increasing the out-of-pocket cost in case of a claim.
When applied	This is a mandatory charge on all insurance claims.	This is not a mandatory charge and is applied only if the policyholder has chosen it.
Risk involved	There is low risk involved and the policyholder pays this regardless of voluntary deductible charges.	There is a higher risk as the policyholder increases their financial burden in case of a claim.

 

How does voluntary deductible help reduce the insurance premium?

Paying a higher voluntary deductible means that you are agreeing to pay more out of your pocket for claims. This increases your financial responsibility in the case of an accident. With a higher voluntary deductible, your insurance provider is taking on less risk, so they will offer a lower premium. With you taking on a greater portion of the risk, the reduced liability of the insurer lowers your overall premium.

 

Let us see how this works with an example. Your voluntary deductible is ₹5,000 and you decide to increase it to ₹15,000. The insurance provider reduces your premium significantly, as you will make fewer or smaller claims due to you covering a more significant portion of the expenses.

 

You should choose to pay a higher voluntary deductible only if you are confident that you will avoid getting into accidents often and make frequent claims. Your financial ability should also be considered before choosing to pay more out of your pocket. Since you can determine the amount, you can tailor your insurance policy based on your financial situation and risk.

 

In conclusion

We hope this blog has helped you understand what a voluntary car deductible is and will help you make more informed decisions about your Car Insurance. Paying a higher voluntary deductible reduces your Car Insurance premium and helps you manage your financial risk. 
 
Are you looking for a Car Insurance plan offering comprehensive protection while giving you the most value for your money? Shriram General Insurance has various affordable Car Insurance plans, customisable add-ons, and a digital-friendly platform. This means you can buy a policy that suits your exact needs within minutes. We also have a simplified claims process and dedicated customer support for all your insurance queries. Choose Shriram General Insurance for reliable support and increased confidence behind the wheel.

 

FAQs

1. What is voluntary deductible in Car Insurance?

A voluntary deductible in Car Insurance is an extra amount you choose to pay on top of the compulsory deductible. This is a way to reduce your premium.

 

2. How does a voluntary deductible differ from a compulsory deductible?

A voluntary deductible is optional, and you get to choose the extra amount to pay. A compulsory deductible is a fixed amount set by the Insurance Regulatory and Development Authority of India (IRDAI) and applies to all claims.

 

3. Will choosing a higher voluntary deductible reduce my premium?

Yes, you will pay a reduced premium if you pay a higher voluntary deductible. This is because it reduces the insurance provider’s risk and liability. However, you will end up paying more out of your pocket in the case of a claim.

 

4. Are there any risks associated with a higher voluntary deductible?

Choosing a high voluntary deductible means your expenses will become more out of your pocket in the case of a claim. This can increase your financial burden. However, since you determine how much you pay as the voluntary deductible, you can set an amount that suits your financial situation.

 

5. Can I change my voluntary deductible amount during the policy period?

Yes, you can change your voluntary deductible amount during policy renewal, or under specific circumstances. This varies between insurance providers, so check with yours to make sure.