Car Insurance Deductible: What Is It? How Does It Work?

Posted on: Nov 9, 2023 | | Written by:

Car Insurance Deductible: What Is It? How Does It Work?

Published on November 09, 2023. EST READ TIME: 3 minutes

Car insurance is mandatory as per the Motors Vehicle Act of 1988. So, anyone willing to drive a motor vehicle is required to purchase a minimum of third-party car insurance. There are various options available to choose from. Not only does it ensure legal fulfillment but it also offers comprehensive coverage for your car. You can rely on this support pillar during unfortunate incidents. However, when you purchase car insurance, especially for the first time, you may come across various terms that you may not have heard before. It is essential to understand every term of the car insurance policy so that you do not confused and get the best coverage for your vehicle.

Car insurance has various terms, and one of these is the car insurance deductibles. In this article, you will get to know all about the deductibles in car insurance, what it is, and how it works. Continue reading to know more.

What is a car insurance deductible?

Simply put, car insurance deductible is the amount of a claim that the policyholder has to pay. It is fixed at the time of purchasing the policy. Whenever the policyholder raises a claim, he/she receives a claim amount after deducting the deductibles.

Types of car insurance deductibles

There are two types of car insurance deductibles. Let's understand these:

1. Compulsory car insurance deductible

As the name suggests, a compulsory car insurance deductible has to be paid compulsorily by policyholders. This is the amount of claim that is fixed by IRDAI. It is fixed on the basis of the engine cubic capacity of the vehicle. Since compulsory deductible in car insurance is decided and fixed by IRDAI, it does not impact the car insurance premium.

Here is the table below that shows the compulsory deductibles as per the engine cubic capacity of the vehicles:

Engine Cubic Capacity	Compulsory Deductibles
Up to 1500 cc	₹1000
Above 1500 cc	₹2000

So, cars that have an engine cubic capacity of up to 1500 have to pay a compulsory deductible of ₹1000, and those above the engine capacity of 1500 have to pay ₹2000.

2. Voluntary car insurance deductible

The other type of deductible is the voluntary car insurance deductible. Since this is voluntary, it is fixed by the car insurance policyholder at the time of purchasing the policy. Voluntary deductibles in car insurance directly impact the premium of the insurance. The higher the deductibles you choose, the lower the premium and vice-versa. However, at the same time, you will also have to pay a higher deductible amount at the time of claim.

How car insurance deductible work?

Car insurance deductibles are only paid when the policyholder raises a claim. This is the reason why some people may opt to go for higher voluntary deductibles in car insurance. However, at the time of raising a claim, a higher deductible may negatively impact you, and you may end up paying more from your pocket. Let's understand the working of car insurance deductibles with the help of an example:

Anita purchased a car insurance policy with a voluntary deductible chosen ₹3,000. Her car has an engine cubic capacity of 1500 cc, so the compulsory deductible is ₹1,000.

After a few months, Anita's car meets an accident, and she needs to raise a claim to get the vehicle repaired. Now, if the claim amount raised is ₹15,000, Anita will have to pay the deductibles. In her case, deductibles will be ₹3,000+ ₹1,000. Hence, Anita will receive ₹11,000 as the claim amount, and ₹4,000 will be paid by her as deductibles.

Note: The example is only for illustration purposes and not the final claim amount. It does not include the depreciation cost and any other applicable terms.

Things to know before opting for car insurance deductible

Compulsory car insurance deductibles are pre-decided by the IRDAI. Hence, one may not make changes to this, and it also doesn't impact the car insurance price. On the other hand, voluntary deductibles in car insurance are opted by the policyholder. So, here are a few things that you must know and keep in mind before you choose the right voluntary deductible for your car insurance policy:

1. Assess your expected coverage

The purpose of investing in a comprehensive car insurance plan is to ensure sufficient coverage for your vehicle. In times of mishaps and damages to your vehicle, it is the car insurance coverage that has your back. So, it is important that you carefully assess the required coverage for your vehicle.

Expected coverage may depend on various factors, such as the frequency of your travel, the cost of your vehicle (higher coverage for luxury vehicles), and your location.

Accordingly, choose a deductible that does not impact the overall coverage to a great extent. If you choose a lower deductible, you get a higher claim amount at the time of need and will not have to impact your pocket much.

2. Voluntary deductibles impact the car insurance premium

The deductibles chosen by you directly affect the premium of the car insurance policy. The higher the deductibles, the lower will be the premium and vice-versa. If you do not feel a need to raise multiple claims in a policy year, you may go for higher deductibles.

However, keep in mind that with higher deductibles, you not only have to pay a lower premium, but the claim amount received is also low as compared to someone who chooses a low deductible.

Conclusion

Car insurance is mandatory for every motor vehicle in India. If you prefer overall coverage, you may go with a comprehensive plan as those offered by HDFC ERGO. However, if you just want to fulfil legalities, third party car insurance will do the needful. Choose a plan as per the needs of your vehicle to ensure maximum protection. While purchasing a car insurance policy, make sure to choose voluntary deductibles in car insurance carefully. Assess your insurance coverage needs and the premium you can afford before reaching a conclusion. If you have yet not invested in a car insurance plan, HDFC ERGO is here to help you out. Choose your plan today!

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

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