Choosing A Higher Deductible Can Lower Your Car Insurance Costs

Driving on Indian roads is filled with challenges. You never know when a speeding car might change lanes abruptly and dent your vehicle or what might happen if your car bumps into a pothole during heavy rain, damaging some of its components. If you have comprehensive car insurance coverage, you can stay worry-free, knowing you can get your car repaired at your insurer's network garage without paying anything out of pocket. But wait, does a cashless claim or a reimbursement claim mean no out-of-pocket expenses? You need to review the deductible clause to dispel this myth.

Let's understand what this clause means and why opting for a higher deductible is beneficial.

But first, what is deductible in car insurance?

A deductible clause in motor insurance refers to the repair or replacement costs you must pay out of your pocket before your car insurance coverage applies to a claim.

Deductibles are of two types: compulsory and voluntary. The former is a predetermined amount set by the insurance regulator, IRDAI, based on the vehicle's engine cubic capacity. That means two cars of different makes and models with identical engine sizes will have the same compulsory deductible amount.

For example, as per the rules, cars with a displacement size of up to 1500 cc have a deductible of ₹1,000, while those over 1500 cc require a deductible of ₹2,000.

On the other hand, the voluntary deductible is the amount you choose over and above the compulsory deductible to lower your premiums. Whether you buy car insurance online or offline, don't forget to enquire about deductibles before finalising your purchase. 

How do deductibles in car insurance work?

Let's use an example to understand this better: Suppose you have bought comprehensive car insurance with a voluntary and compulsory deductible totalling ₹10,000. After a few days of obtaining coverage, your car was involved in an accident requiring replacement and repair of damaged components.

You took your car to a cashless garage, where the mechanic informed you that the total repair cost would be ₹9,500.

In this case, even though the repair work was done at a network garage, you must pay the entire amount out of your pocket. The reason is that the invoice value is less than the deductible amount. However, if the bill amounts to ₹12,000, the insurer is liable to pay ₹2,000.

When does a higher deductible in car insurance make sense?

A higher deductible in car insurance is beneficial under the following circumstances —

1. Lower premium costs: Opting for higher deductibles translates to lower financial risk for the insurer, as you need to bear a specific amount in case of a claim. In exchange, the insurer charges a lower premium amount.

2. Customised coverage: Whether buying car insurance online or offline, choosing a higher deductible lets you tailor your insurance to your financial situation and risk tolerance. It can be particularly advantageous if you have a good driving record and are confident in avoiding accidents.

3. Minimal Driving: If you do not drive your car often and it is mostly parked in the garage, opting for a higher voluntary deductible to lower your premium can be a good option. You may also consider this if you plan to sell your car in the upcoming months.

When not to consider choosing a higher voluntary deductible?

1. Location: If you live in an area with a higher risk of accidents, opting for a higher deductible might not be worthwhile. For example, if you drive in an area where landslides occur frequently, it is better to consider a plan with a lower deductible. 

2. Frequent claims: If you anticipate making frequent claims, such as for minor accidents or damages, a higher deductible could lead to higher cumulative costs over time. In such cases, the savings on premiums may not justify the increased personal expense. 

3. High-value cars: Even minor damages can result in substantial repair costs for luxury or expensive cars. A higher deductible can be risky since you may have to pay a significant portion of those costs.

4. Inexperienced drivers: If you are a new or inexperienced driver, the chances of getting into accidents might be higher. In such scenarios, opting for a lower deductible would be more prudent.

5. Low premium savings: If the premium reduction offered by the insurer is minimal despite opting for a higher deductible, the trade-off isn’t worthwhile. The financial burden during a claim may outweigh the savings. 

Conclusion

Whether to increase the deductible voluntarily is entirely your personal choice. While it may help you secure a policy with more pocket-friendly premiums, your out-of-pocket expenses increase significantly in the event of an accident. Even if you do not drive often, you never know when a mishap could occur, resulting in hefty repair bills.