Deductible and deductible clause in car insurance

Wang Yan

Global Courant

In any insurance policy, a deductible is any expense that the policyholder must pay out of pocket before the insurer pays the cost. It is also used to describe any clauses used as payment thresholds for policies. There are actually two types of such clauses in car insurance, namely the compulsory deductible clause and the voluntary deductible clause.

The deductible or deductible is an amount that the insured agrees to pay out of pocket and the balance is taken care of by the insurance company. This is in case a claim arises and the amount is determined in advance in consultation between the insurance company and the insured.

To take an example of a claim, if the deductible in a car insurance policy is INR 5,000 and a claim arises for INR 15,000, then the insurance company would pay INR 10,000 while deducting INR 5,000 from the insured.

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The mandatory excess clause in the car insurance is something that the insured cannot determine in advance. This is mandatory withheld by auto insurance companies for each claim. Depending on the type and condition of the car, the amount that is deducted is fixed in advance. Any claims will be paid after the deduction has been made. If this type of clause is mandatory with an auto insurance company, then the voluntary deductible clause is entirely an optional affair since there is an amount of money taken out of the policyholder’s pocket for each claim anyway. Taking a voluntary option is therefore entirely up to the policyholder.

The advantage of opting for a voluntary excess, even after the compulsory clause has been invoked, is that the premium paid on the policy is reduced. The premium has a section called ‘own damage’ to which the discount is applied. The higher the amount of the voluntary excess, the greater the discount insurance companies give you the premium. However, it is important to understand that while premiums will be reduced if you opt for a high voluntary deductible, your deductible will also be higher if a claim arises. So it is better to choose a deductible clause that you can easily pay if a claim arises. The higher the deductible, the higher your out-of-pocket expenses will be if a claim arises, and if it’s not possible to come up with a large amount in the short term, this could put you in an awkward situation.

A deductible and deductible clause has its pros and cons, both long and short term, that should be considered before making a decision on it.

Deductible and deductible clause in car insurance

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