Car Insurance Should you opt for a higher voluntary deductible or not

Thursday, March 9, 2017

Car Insurance Should you opt for a higher voluntary deductible or not

While one part of a deductible is compulsory, the other is subjective, and therefore, before going for a higher deductible option, one must carefully analyse the situation to avoid risk. 

Be it, shopping for clothes, buying vegetables, or making any other purchase, we Indians always look for ways to ‘extract’ maximum benefits by paying a lower price. And when it is about buying a car insurance policy, our entire focus is diverted towards saving even the last penny. After all, it comes handy only ‘if’ something goes wrong and that ‘if’ will never happen (at least we all think so).

So, when the insurer advises you to increase the voluntary deductible limit on your car insurance policy to lower your car insurance premium, you happily agree to do so. As in this way, you end up saving some bucks, which you are likely to spend on buying new shoes or clothes. But wait! 

I understand that by increasing your deductible, you can lower your car insurance premium. But, why we need the insurance policy in the first place? Doesn’t raising the deductible limit through the roof defeat the entire purpose of buying insurance?

Remember, no insurer can tell you what your deductible should be. The answer should come from you. You’re the only one who knows what your deductible should be and how much you can afford.  
Note, the deductible is applicable only in the case of comprehensive car insurance policy. 

Decoding the relationship between deductibles and premiums

Remember, insurance companies charge deductibles to dissuade policyholders from making ‘nuisance’ claims for a relatively small amount. Therefore, the higher the deductible you choose, the lower will be your premium rate. 

Voluntary Deductible
Rs 2,500
20% on the Own Damage (OD) premium, maximum up to Rs 750
Rs 5,000
25% on the OD premium, maximum up to Rs 1,500
Rs 7,500
30% on the OD premium, maximum up to Rs 2,000
Rs 15,000
35% on the OD premium, maximum up to Rs 2,500

Choose a deductible you can live with

Before you sign up for the highest voluntary deductible limit, it would be wise to consider how much you’d save on premium rates. You should also consider if you are financially and emotionally ready to part with your cash if a claim arises in the future or not. Though a higher deductible will lower your insurance premium rates; it would expose you to a higher risk. 

The first thing to understand here is that the objective of a motor insurance is to ensure that you’ll survive financially in case of any mishappening. Saving money by raising a deductible limit means that you have sufficient cash in hand to recoup from losses. If you raise the deductible on your auto insurance from Rs 300 to Rs 5,000, you’ll see a massive drop in your bill. However, if something goes wrong with your car, you will have to pay Rs 5,000 from your pocket. 

The deductible you choose for your car insurance policy is directly proportionate to what you can afford. It means, if you decide the deductible as Rs 5,000, you have to fork out Rs 5,000 from your pocket for car repairing after an accident. However, if you can’t afford to do that, it is good to go for a lower deductible limit. 

What should be your next move?

It is imperative to carefully analyse the cost vis-à-vis the affordability, and then choose a deductible limit. Moreover, it is a personal choice that should be taken only after analysing the financial affordability. And most importantly, the decision must be based on how much you can save on premiums by opting for a higher voluntary deductible limit. For instance, what is more difficult for you - paying Rs 5,000 as a lump-sum deductible at the time of a claim, or paying an extra Rs 500 in premium every year? The decision is all yours. 

The key to the right decision making — make sure you have sufficient funds to handle that higher deductible. If you don’t have funds, think twice before making changes in your insurance policies.  

In the end, your decision is final 

Some people would not be comfortable in paying the slightly higher premiums annually even if they can afford it easily. 

To arrive at the right decision, it is advised to talk to your car insurer and choose the policy that offers the protection you need at the price you can afford. 

Moreover, any insurance helps you only if it is sufficient. The same holds true for vehicle insurance as well. Instead of relying only on voluntary deductible to trim, premium rates, go for the other good ways of saving money on your motor insurance, like equipping your car with anti-theft equipment, avoiding filing smaller claims, etc. 

If you are buying car insurance just for the heck of it, I would advise you—Don’t buy it! 

Author: Milli Kaur

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