Insurance deductibles refer the amount of money you need to pay from your pocket when you raise an insurance claim. There are two types of deductibles in the insurance industry, namely, compulsory deductibles and voluntary deductibles. Here you may wonder, what the difference between compulsory and voluntary deductible really is. To know the answers, read on.

What are compulsory and voluntary deductibles?

• Compulsory deductible

  As the name suggests, these are insurance deductibles that are mandatorily paid to the insurer at the time of claim settlement. This does not affect the IDV of your vehicle and hence, has no effect on the premium you need to pay for you insurance policy. The amount you need to pay in the form of compulsory deductibles is decided by the Insurance Regulatory Development Authority of India (IRDAI). The fixed amount is decided based on the engine capacity of your vehicle. As per the India Motor Tariff, if your car has an engine capacity below 1500 CC (Cubic Capacities), you will need to pay Rs 1000 as the compulsory deductible when you raise an insurance claim. Alternatively, if your car has an engine capacity more than 1500 CC, your compulsory deductible amount would be Rs 2000.

• Voluntary deductible

  This is a part of the claim amount that you choose to pay from your pocket. Voluntary deductibles are inversely proportional to the car insurance premium you need to pay for your policy. Implying, if you opt for a voluntary deductible that is higher in value, the premium of your insurance policy decreases. The value of the voluntary deductible is usually dependent on your insurance budget and the susceptibility of your vehicle getting into an accident.

  Here is an example to help you understand better. Imagine you need to raise an insurance claim of Rs 10,000 to repair your car after an accident. Your car has an engine capacity of 1200 CC and the voluntary deductible amount set by you is Rs 3000. How much compensation will the insurer offer? The insurer will only offer you Rs 6000 to repair your damages because Rs 4000 will have to paid by you. Rs 4000 is the sum of the compulsory deductible (Rs 1000) and the voluntary deductible (Rs 3000) set by you.

Compulsory vs voluntary deductible in car insurance: What are the differences?

There are a few key differences between these two types of deductibles:

• Flexibility

  The amount of money you need to pay in the form of compulsory deductible in car insurance is defined by the IRDAI and as a result, you do not get much financial flexibility here. However, voluntary deductibles are set by you, so these give you increased flexibility in managing your finances.

• Relation with the insurance premium

  Compulsory deductibles do not affect the premium you need to pay for you insurance plan. However, voluntary deductibles are inversely proportional to the cost of procuring the insurance policy.

• Savings

  Compulsory deductibles do not help you in saving money as they are pre–set by the IRDAI. Alternatively, if chosen smartly, voluntary deductibles can help you save a significant amount of money in the long run.

Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.