CAR INSURANCE: Reduce premium with deductibles

When buying car insurance, many opt for a higher amount of voluntary deductible to reduce the premium. While such deductibles will encourage the policyholder to drive carefully and not raise claims for any minor damages, he will have to pay a higher out-of-pocket expense in case of an accident claim. Deductibles in car insurance are cost-sharing agreements between the insurer and the insured where a portion of the claim is paid by the policyholder before getting the insurance claim.

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There are two types of deductibles  — compulsory and voluntary —and the policyholder must understand the terms and conditions of the deductibles mentioned in the policy document. While the compulsory deductible is fixed by the insurance regulator, the voluntary one is decided by the policyholder. Rakesh Goyal, director, Probus Insurance, says the deductible is calculated based on the premium value and the percentage of the coverage. “Higher the value of your deductible, lower would be your premium,” he says.

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The policyholder should not always look for a cheap cover as it will come with higher voluntary deductible. John Mayne, executive director, CoverStack, an insurtech startup, says the amount for voluntary deductible is decided by the individual policyholder while purchasing the policy. “If a policyholder’s capacity to bear expenses is higher at the time of loss, he has the advantage of paying less in premiums over the years. However, it is best to choose an affordable amount as voluntary deductible as in case of heavy damages, one may incur higher out-of-pocket expenses,” he says.

Compulsory deductible

All insured vehicles will have a compulsory deductible component in the policy as per norms of the insurance regulator and the amount will depend on the engine capacity. For private cars up to 1499 cc engine capacity, the compulsory deduction is Rs 1,000 and for those above it is Rs 2,000. The compulsory deductible has no effect on the insurance premium as it is paid by the insured as a fee when a claim is made.

What should be the voluntary deductible amount

A policyholder must decide the amount of voluntary deductible depending on the premium he has to pay for the policy and his comfort level with paying out-of-pocket expenses in case of a claim. The voluntary deductible should be decided after factoring in the usage of the car and the risks the insured perceives he might be exposed to. For instance, if the usage of the car is less and it is exposed to lower risks, you can go for a higher deductible. Your driving skills and the area where you usually drive the car are other points to consider. “Considering all these, you can decide whether to opt for higher deductible,” says Goyal.

One must also look at the repairing costs in case of damage, especially if it is a new car. “If you opt for a higher deductible over and above the compulsory deductible, you have options available to choose from and avail discounts. Higher deductibles usually offer higher discounts on the premium but choose wisely looking at the probability of damage and affordability of the same,” says Mayne. So, if you opt for a higher deductible ensure you or the person driving your car is careful and advanced safety features are installed in the car. Also, opt for a comprehensive cover along with add-on covers such as zero depreciation, engine cover and vehicle replacement.