Deductibles in Car Insurance: Voluntary and Compulsory Deductibles

When buying car insurance, you need to be aware of the components that makes up the premium. The premium amount is a recurring cost that you pay to the insurer for providing the policy coverage and benefits listed in the policy. And, a deductible in car insurance is the amount you pay from your pocket in the event of a car insurance claim. Are you still confused? 

In this article, we explain what is a deductible in car insurance and how does it work.

Deductibles in vehicle insurance is a cost that you must pay from your pocket before the policy covers the remaining claim amount. The Insurance Regulatory and Development Authority of India (IRDAI) sets the deductible amount. The deductible in car insurance is based on the car’s engine cubic capacity. There are two types of deductibles in car insurance, voluntary and involuntary deductibles.

Compulsory deductible in car insurance is mandatory, and you have to pay as part of the claim. A compulsory deductible in car insurance does not increase or decrease the insurance premium you pay since the car insurance premium is based on the model, year of manufacture, and approximate market value or Insured Declared Value (IDV) of the car. 

As the name suggests, this type of deductible in car insurance is voluntary, and you can decide how much you volunteer to pay from your pocket to repair damages to your car. Choosing to have a voluntary deductible in your car insurance policy decreases your policy’s premium amount; however, your out-of-pocket expense increases during a claim.
You can decide the extent of your deductible when you buy or renew car insurance online. ACKO will pay only the part of the claim amount that is over and above the voluntary and compulsory deductible.

Unlike the premium amount, the deductible is applicable only during claim. You are accountable for your policy’s stated deductible whenever you submit a claim. Once you pay the deductible, ACKO will pay the repair cost or claim amount balance.
Here is an example of how car insurance deductible works.

Please note that this example does not consider depreciation, and is simplified for explanatory purposes.

As mentioned earlier, the deductible is a part of the claim amount which is supposed to be borne by the policyholder at the time of claim settlement. Here are the factors that differentiate Compulsory Deductible in Motor Insurance from Voluntary Deductible:

Car insurance is primarily of two kinds — Third-party Car Insurance Policy and Comprehensive Car Insurance Policy. While the former type of car insurance policy covers you against third-party liabilities, the latter protects you against damages to your car. Refer to the following points about the role of deductibles in car insurance.

Third-party compensation can be in the form of injury or death of the third party or in case of repair to their property. Since this type of insurance does not cover losses incurred by the insured car, deductibles are not applicable in this type of insurance policy.

Comprehensive insurance offers broader coverage than a Third-party Liability Plan. Hence, it covers the cost of repairing damages to your car, and thus, both voluntary and compulsory deductibles are applicable in this type of car insurance plan.

Here’s why deductibles are important in a Comprehensive Policy:

The amount of voluntary deductible you choose depends on your comfort level and the extent of risk you are willing to take in case of a claim. When you opt for voluntary deductible, the claim amount will be lower, and out-of-pocket expenses will be higher. Here are situations where you can choose voluntary deductible in your car insurance policy.

The deductible remains inactive in the following situations:

Deductibles are introduced with an intention to reduce the number of claims. Thus, only claim for the damages which very expensive to repair and drive responsibly.