A car Insurance policy or a motor insurance plan is an agreement between an insurer and a car owner or anyone with an insurable interest in a car. In consideration for a premium paid by the policyholder, the insurer promises to provide financial protection in case of any losses arising from a road accident involving the vehicle, and from any third-party liabilities arising from an incident involving the car. It also include coverage against theft of the car and damage sustained because of causes other than a traffic collision. According to the Motor Vehicles Act, 1988 a third-party liability car insurance plan is mandatory for all vehicles plying on public roads in India.
When looking to purchase a motor insurance policy, you can choose from two types for car insurance plans available:
A third-party liability insurance provides cover for third-party injuries and their property damages. IRDA (The Regulatory Authority for Insurance in India) revises the rates for Third Party Coverage each year.
Comprehensive car insurance covers damages to your car in addition to covering you against third-party liabilities. This type of plan provides an all-round financial protection relating to your car. The OD premium would vary depending on the car’s make-model, age of the car, engine capacity, and geographical zones.
Further, you can also get add-on covers to enhance the protection offered by the base car insurance plan to meet your particular requirements.
A car insurance deductible is the amount you will have to pay out of your pocket before the insurance cover kicks in. For car insurance, deductibles are typical calculated on a per claim basis. For example, if you file a claim for damages worth Rs 15,000 and the deductible is Rs 1,000 – you will have to pay Rs 1,000 towards the repair and the insurer would pay the rest.
Increasing the amount of voluntary deductible is a way to reduce car insurance premiums. But this is a double-edged sword, as a higher voluntary deductible would mean a larger amount to be paid out of your pocket when your car needs repair. Therefore, you should choose only as much deductible as you can afford to pay out of pocket.
When opting for a voluntary deductible, consider how much can you pay without it having an impact on your other expenses. Consider your household budget, your income, your saving plan and also your access to credit when deciding on the amount you would be comfortable with.
Remember that a marginally higher premium could save you a lot of headache in case of an unforeseen accident. You do not have to worry about arranging for monies when you may already be under considerable stress.
Car insurance providers believe that deductibles incentivize the policyholder to be responsible in their handling of the car. It ensures that upkeep of the car is a joint endeavour between the insurer and the owner-driver. As some of the cost of repairs will have to be borne by the policyholder, she would be cautious in her use of the asset and, therefore, be able to use the car better.
Additionally, deductibles discourage policyholders from filing small claims saving on overhead expenses involved in settling a claim. It also allows the car insurance policies to be priced competitively, and makes it accessible for a wider range of customers.
Think of it like this: when a child first gets a cycle, the parents are worried about whether she would take care of the cycle. Some parents tell their child that a part of the cost of any repair the cycle needs will be cut from her pocket money. This makes the child act responsibly and ensure that the cycle stays in good condition as much as possible.
There are two types of deductibles that may be part of your car insurance policy:
Let us look at each of them in detail.
A voluntary deductible is the amount that would have been paid by the insurer under usual conditions, but you selected to pay it out of your pocket. Choosing to have a voluntary deductible added to your insurance cover brings down your car insurance premium significantly. This is because the risk that the insurer is exposed to is lowered when the insured opts for voluntary deductible.
You will have to decide on how much you are willing to pay out of your pocket at the time of policy proposal itself. The deductible would be applied to every claim you file in the policy period. The insurer will only pay the part of the claim amount that is above the total voluntary and compulsory deductible.
With this kind of deductible, the policyholder has no choice and pay a part of the motor insurance claim. IRDAI regulations have fixed the value of compulsory deductible in car insurance based on the cubic capacity of the car engine. At present, it is set at ₹1,000 for cars with a cubic capacity up to 1500cc, and at Rs 2,000 for greater cubic capacity. The compulsory deductible does not have any impact on the car insurance premium. Compulsory deductible is only applicable for comprehensive car insurance, and not to third-party liability only car insurance policies.
The amount of deductible you opt for depends on your comfort level and the amount of risk you are willing to take. When deciding on a voluntary deductible, consider if you have a sufficiently large emergency fund available. You do not want to deplete the fund, if it is small, when you can avoid the same.
Another consideration is the value of your car. If you own a expensive vehicle – the premium for the car insurance will be high as well. It may make sense to opt for a small deductible so as to save on the premium. Remember that you would anyways not make small claims to build up your no claim bonus, so it would be sensible to opt for a deductible equal to that amount for which you would anyways not file a claim.
A deductible is the amount that you have to pay per claim before the insurer pays for the rest.
You only have to pay the deductible on the claim that is paid out by your insurer. If another party is found to be at fault, their insurance would pay for the damages and you will not have to pay any deductible.
Deductible on your car insurance is typically calculated on a per claim basis.
A deductible is the amount that you have to pay per claim before the insurer pays for the rest. So, if you file a claim for Rs 10,000 and the deductible is Rs 1,000 – the insurer will only pay Rs 9,000 and you will have to pay the rest out of your pocket.
The compulsory deductible for cars with engine capacity more than 1500cc is set at ₹2,000 by IRDAI. You could also opt for voluntary deductible – this does not have any upper limit.
The compulsory deductible for commercial car insurance policy remain the same as for personal car insurance policy. You can also opt for voluntary deductible based on your comfort to lower the car insurance premium.
UIN : Smart Drive Private Car Insurance