Team AckoDec 10, 2021
A vital point to understand about insurance is that as a policyholder, it is not a profit-making mechanism. Vehicle insurance is not an investment opportunity that will result in financial gains. Car and bike insurance policies are a safety net. They help you out financially in case of an accident or damage to the vehicle. However, this ‘help’ is governed by the policy’s terms and conditions. Excess insurance or Compulsory and Voluntary Excess is a crucial aspect of a policy and its terms and conditions, that you need to understand and be aware of while buying/renewing car insurance online or raising a claim.
This article covers important aspects of this excess insurance. By going through the following sections, you will be able to know details about deductibles and gauge whether you should opt for a Voluntary Deductible or manage with the Compulsory Deductible. A few Frequently Asked Questions at the end are meant to clear further doubts. The article is followed by a simple quiz. Read ahead for more information about excess insurance.
Excess Insurance is another terminology used for Deductibles. These Deductibles are of two types: Compulsory and Voluntary. Excess Insurance is not a type of policy or an add-on. It is a technical concept that is a part of the insurance framework. The insurer takes Excess Insurance into consideration at the time of settling claims.
When it comes to car insurance, you have the option to go with the Mandatory Excess or choose the component. As mentioned earlier, Excess Insurance is nothing but Deductibles. A Deductible is when you have to pay a fixed amount at the time of settling a claim. It is the amount that the insurance company will not pay. You can view it as your contribution. Such a Deductible is involved to discourage policyholders from making petty claims.
There are two types of Deductibles: Compulsory Deductible (CD) and Voluntary Deductible (VD). In CD, you have to pay the determined amount as a Deductible. In VD, you can choose the payable amount (over and above the CD).
This section is all about understanding CD and VD in detail.
The CD for a car is based on its engine capacity (cc). Thus, if your car features an engine with a higher cubic capacity, you will end up paying a higher CD. Here’s a table that will assist you in comprehending this relationship.
|Capacity||CD Amount (INR)|
|Car’s engine not exceeding 1500cc||1000|
|Car’s engine exceeding 1500cc||2000|
|Two-wheelers (with motor)||100|
Therefore, the CD for a car with a 2000cc engine would be INR 2000. And for a car with a 1400cc engine would be INR 1000.
Here you have the option to increase your excess amount. A VD amount is beyond the CD amount. Thus, you will have to pay the CD amount plus the VD amount at the time of a claim. However, since you are willing to commit to voluntarily pay a fixed amount at the time of claims, the insurer can offer you a discount on your premium. The Voluntary Excess Discount can be as per the following table.
|VD Amount (INR)||Discount|
|2500||20% on the Own Damage Premium (maximum of INR 750)|
|5000||25% on the Own Damage Premium (maximum of INR 1500)|
|7500||30% on the Own Damage Premium (maximum of INR 2000)|
|15000||35% on the Own Damage Premium (maximum of INR 2500)|
Listed below are important aspects of a CD in car insurance.
A CD is also known as a Mandatory Excess.
The amount mentioned as CD cannot be modified by the policyholder.
It deters minor claims.
It is calculated as per the vehicle’s engine capacity.
Listed below are important aspects of a CD in car insurance.
A VD is also known as voluntary excess.
The amount mentioned as CD can be modified by the policyholder.
It can prove helpful in reducing the payable premium.
A higher VD can lead to lower claim pay-out.
Here’s a table that highlights key differences between the two concepts.
|Points||Compulsory Deductible||Voluntary Deductible|
|Meaning||A predetermined amount that has to be paid compulsorily by the policyholder in case of a claim.||A predetermined amount that has to be paid voluntarily by the policyholder in case of a claim.|
|Also Known As||Compulsory Excess||Voluntary Excess|
|Modification||A policyholder cannot modify this component.||A policyholder can modify this component, provided it is over and above the CD amount.|
|Motive||To discourage minor claims.||To reduce the payable premium.|
|Claim Pay-out||Comparatively higher.||Comparatively lower.|
Voluntary Excess or Voluntary Deductible in car insurance works in the following manner.
Step 1: At the time of purchasing/renewing a car insurance policy, you need to inform the insurer about your decision to opt for the VD.
Step 2: Insurer will verify your request and discuss the VD amount with you.
Step 3: Once the VD amount is finalized, the insurer will calculate the payable premium keeping in mind the stated VD.
Step 4: You need to pay the finalised premium and purchase the policy.
Step 5: At the time of claim, pay the pre-determined and discussed VD and settle the claim.
Here are the benefits of going for VD.
The biggest advantage of choosing a VD is that you will have to pay a lower premium. This is because when you opt for VD, the insurer does not have to bear the entire claims burden. This is reflected in the payable premium and works well for you, the policyholder.
You have the flexibility to choose the VD. It can be done in the range of INR 2500 to INR 15,000. The higher the VD, the higher the discount on Own Damage.
Also, read: Vehicle Scrappage Policy in India
Here are the drawbacks of going for VD.
As you are committing to the insurance company that you will contribute a certain amount beyond the CD at the time of the claim, you receive a lower pay-out at the time of claim settlement. This might go against the prime reason to insure your car, which is to ensure financial assistance at the time of an unfortunate event for which you need to raise a claim.
This point is in conjunction with the issue of not insuring a vehicle adequately. With VD, what happens is you do not receive adequate financial assistance from the insurer and you have to pay (as decided) at the time of repairs. This sudden payment can be tough for you from a financial standpoint if the repair charges are too much to handle.
Choosing a VD is a personal choice and can be made by anyone looking for Comprehensive Car Insurance. Overall, opting for a VD can be beneficial for the following types of people.
Experienced drivers are confident. They are in control of their vehicle. As a result, the probability of claims reduces comparatively. Therefore, if you are an experienced driver, then you can opt for a VD and enjoy the benefit of low premiums without worrying about the claim, which as per your experiences is less likely to happen as compared to a newbie.
If you are someone who is financially secured (to an extent) and does not mind contributing to the claim amount for car repairs, then going for the VD option can prove beneficial for you.
You should be wary of opting for a VD if you belong to the following two categories.
Those who are new to driving are at a higher risk of an accident. Also, repairing the damages to a new car can be an expensive affair. Thus, the chances of raising a claim are more in such cases. Therefore, a higher insurance cover, where the insurer pays for the bulk of the claim settlement is beneficial for you. You might end up paying comparatively higher premiums but since the probability is against you, it is better to settle for the compulsory deductible.
If you are someone who does not have savings for issues related to car repairs, you are better off letting the insurer handle the claim settlement entirely by themselves. Why do you want to force yourself in a position where you will be required to contribute to a claim amount from your pocket when you do not have adequate savings for such situations? People with low savings are likely to utilise the saved money for an emergency (for example, health issues) than to spend the savings to repair their car.
A car insurance add-on is an extra cover. You receive it by paying extra premium. In car insurance, you can choose add-ons with a Comprehensive Plan. Add-ons are voluntary. However, not all voluntary features are termed as add-ons. For example, a Voluntary Deductible is not an add-on; it is a voluntary option that offers benefits.
Here’s a table featuring top add-ons in car insurance.
|Zero Depreciation||Depreciation component of the asset.||Negates the calculation of depreciation while settling claims leading to comparatively higher claim pay-out.|
|Return to Invoice||Total loss of the insured vehicle.||During a total loss situation, the insurer will pay the car’s invoice value and not the Insured Declared Value.|
|Engine Protection||Insuring the car’s engine.||Flooding and major accidents can damage the car’s engine to a great extent. This add-on covers such situations.|
|No Claim Bonus Protection||Securing the No Claim Bonus (NCB) component of the policy.||Even if you raise a claim or two, your NCB bonus shall remain valid while renewing the car insurance policy.|
|Passenger Cover||Accident Cover||This add-on offers an Accident Cover for passengers.|
Also read: Deductibles in Car Insurance
The below-stated section will help to clear basic doubts, if any, concerning CD and VD. The following list of queries is generic, for specific questions, please contact your insurer.
If I opt for VD, do I still have to account for CD?
Yes, VD is beyond the CD component. Thus, if you are opting for VD, you need to account for CD and VD.
Is there a difference between the terms; excess and deductible?
Concerning vehicle insurance, both the terms mean the same and are used interchangeably.
Do I need to opt for VD for a particular type of car?
Opting for VD is completely optional and not limited by a type of car. It is based on your discretion.
Does VD help to reduce the premium?
Yes, VD can reduce car insurance premium up to INR 2500 as per the terms and conditions of the policy.
Is the option of VD available for old cars?
Yes, the option of VD is available for new as well as old cars.
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