Voluntary Deductible in Car Insurance: Meaning, Benefits & How it Works

Does it make sense to go with a higher voluntary deductible?

If you have, or you are planning to buy, a motor insurance policy one of the things that you would be stressing on is the premiums. Ensuring that you get enough coverage for an affordable premium is very important when you are choosing an insurance policy.  

Now if you’re wondering why we are talking about premiums when the title clearly says, “voluntary deductible”, this is because opting for a voluntary deductible is one of the easiest ways to reduce your insurance premium. 

Who doesn't like to save money on premiums? We’re sure you do too. So, let’s see if opting for a higher voluntary deductible to reduce your premium is actually worth it or not! 

A deductible is basically just the amount you need to pay your insurer before you go through with a claim or reimbursement that you have to pay out of your own pocket before your insurance company pays for the rest.  

Let's take a different look at it. Basically, it’s like if you and your friend go out for lunch and you decide to share the bill. This means that both of you will be paying a certain amount, right? 

That’s just how the deductible works, you’re sharing a small part of the risk with your insurer so that they can ensure that you are only going to make genuine claims. 

So, if you file a claim for damages worth ₹15,000 and your deductible is ₹1,000 – the insurer will “deduct” that amount and pay for ₹14,000 worth your car repairs.  

You can decide just how much you’re willing to pay for this at the time of buying your car insurance policy, and this would then be applied to every claim.

Your insurer will only pay the part of the claim amount that is above the total voluntary and compulsory deductible. Deductibles are of two types – compulsory and voluntary. 

Read More:

• Types of Motor Insurance 
  
• Car Insurance Calculator 
  
• Zero Depreciation in Car Insurance

Choosing the amount of your voluntary deductible can make a big difference to your premium. Here are some situations where it makes sense to go with a higher voluntary deductible:

• If you are confident of your driving skills - If you’re an excellent driver who is cautious, alert, safe and skilled, you can be sure that the chances of you having to make a claim against your insurance are much less. This way you can use the higher voluntary deductible as a great way to save loads of money on your premium. 
  
• If you live in a super safe area - In case you live (and drive) in a location that is incredibly safe and not at all an accidental prone area, you might opt for a higher voluntary deductible without having to worry too much about paying the amount in case of an accident.

However, there might be some situations where it is not a good idea for you to choose a high voluntary deductible. Here are some cases where a voluntary deductible doesn't make sense: 

• If you can’t afford to pay the amount - Only choose the amount of your voluntary deductible based on what you can pay at the time of a claim. Despite the discount you will get on your premium, always remember that you may need to pay this amount out of your own pocket. So, if you’re not sure that you will be able to do this, opt for a lower voluntary deductible or avoid choosing it in the first place. It’s meant to help you save money and not the other way around!
  
• If you’re a reckless driver - Remember that if you are a reckless driver, you are more likely to get into an accident. This means that the chances of you have to pay the voluntary deductible amount is higher.  
  
• If you drive and live in an accidental prone area - If you happen to live in a location that is known for its high number of accidents (like in the centre of a city, or along a major highway) once again the chances are higher that your vehicle might be involved in an accident. This would mean that your premium will already be quite high and that you might have more reason to end up paying your voluntary deductible amount.
  
• If your vehicle is quite old - When your vehicle is on the older side, it’s likely that your premium will also be increased. And since the voluntary deductible is a percentage of your premium, it will also increase.  

As we have already seen, having a higher voluntary deductible comes with one major benefit for you – your premium amount will be less.

However, if you choose to do this you must keep in mind whether or not you will be prepared to pay a larger amount for repair costs in case you get into an unfortunate accident. 

Let us say that you file a claim for damages worth ₹25,000 (after subtracting the compulsory deductible). If your voluntary deductible is set at ₹10,000, then the insurance company will only pay ₹15,000 and you would need to pay the remaining ₹10,000 from your pocket. 

But, if your voluntary deductible was only ₹5,000 – the insurer will pay out ₹20,000 and you would only need to pay the balance of ₹5,000. However, in this second case, you motor insurance premium will be higher.

While it can save you money on your premium, you need to decide whether or not it’s advisable for you to choose a higher voluntary deductible. 

Usually, it’s a great way to save money on your premium if you’re certain that there is little chance of you having to make any claims (and then paying this amount out of pocket!)

Always remember that you should only increase your voluntary deductible to an amount that you can actually afford if you make a claim. Because at this point you can’t back out.