We all know that car insurance is more of a safety net that helps you financially in case of any damage or accident than a financial investment. When purchasing car insurance, it's essential to understand the terms and conditions that determine how much you pay in case of a claim.

 In this blog, we will explore more about the significance of deductibles in car insurance.

What is Excess in Motor Insurance?

Excess is the amount the vehicle owner must pay when a claim is approved. It is also known as deductibles. For example, if you file a claim for INR 5000 and the excess is INR 500, the insurance company will pay INR 4500, and you will need to cover the remaining INR 500.

Motor insurance excess consists of two types of deductibles

  •  Compulsory deductible
  •  Voluntary Deductibles

What is Compulsory Access in Car Insurance?

The compulsory excess is the amount that your insurance provider automatically charges you when you make a claim. It’s a non-negotiable fee that is decided by the insurer and based on factors like your age, the car you drive, and your driving history. The compulsory excess is set to manage risk and keep premiums in check by discouraging small claims.

Example -  For instance, if your compulsory excess cost is ₹5,000 and the actual car repair costs ₹15,000, you have to pay ₹5,000 excess, and the insurer will cover the remaining ₹10,000.

Key facts to keep in mind about Compulsory Access in Car Insurance

Minimizing small claims

Many policyholders tend to submit the smallest or third-party vehicle damages. It is a must to know that for small claims, the insurer attaches the technical cost. Intending to reduce the number of insurance claims, the insurer brings in the deductible motor insurance.

Non-Negotiable

Policyholders cannot decide the amount of compulsory access. Only the insurance company can decide the same.

Vehicle Type

The insurance company determines the compulsory excess amount based on the vehicle's category, which takes into account factors such as the engine type, model, and age of the vehicle.

Claim Type

The compulsory deductible may vary depending on the type of claim you submit. This variation is based on factors such as windscreen damage or engine damage.

What is Voluntary Access in Car Insurance?

The voluntary excess is an amount you choose to add on top of the compulsory excess. It’s entirely optional and can be adjusted based on how much you’re willing to pay out of pocket in the event of a claim. By going with a  higher voluntary excess, you can typically lower your insurance premium as you’re agreeing to take on more financial responsibility.

Example - If your compulsory excess is ₹5,000 and you choose a voluntary excess of ₹3,000, your total excess would be ₹8,000 in the event of a claim.

Important facts to keep in mind about the voluntary excess

Policyholder’s Rights

In voluntary access, the policyholder has the right to choose the deductible amount unlike in compulsory excess.

Reduce Your Premium

By opting for a voluntary excess, the insurance company offers a significant discount on your premium. This serves as an incentive to choose a higher voluntary deductible.

Modified

The policyholder can make changes in the voluntary excess amount in the future at their convenience.

Lower Claim Pay-out

Choosing a higher voluntary deductible results in a lower claim payout from the insurer.

To Sum Up

Both compulsory and voluntary excesses play a significant role in how much you pay for car insurance. While the compulsory excess is determined by the insurer based on factors such as the car's risk profile, the voluntary excess is something you can choose to adjust your premium.

By carefully analyzing your financial situation and driving habits, you can make the best decision about how much excess you’re willing to pay. Finding the right balance between your excess and premiums will help ensure that your car insurance meets both your needs and budget.

FAQs

How is the compulsory excess determined?

The compulsory excess is determined by the insurance company based on factors like your vehicle’s model, engine type, and age.

Can I modify the voluntary excess?

Yes, you can adjust the voluntary excess amount as per your preference. Simply choose the amount that suits you.

What is the motive of introducing compulsory excess?

The compulsory excess helps reduce small claims by discouraging vehicle owners from filing minor claims, which ultimately helps keep premiums lower for everyone.

Is it mandatory to buy voluntary excess in my car insurance?

No, choosing voluntary excess is not mandatory. It’s completely up to you whether you want to include it in your policy or not.