Deconstructing Deductibles: What it means

Team Digit, 29 Aug 2018

Explain it like I'm five

We're making insurance so simple, now even 5-year-olds can understand it.

A boy wanted to buy a bicycle for his birthday. But the parents were worried about his safety on roads. After a lot of thought, they told the boy that he would get a cycle but on one condition. If any damage happens to the cycle, a part of the repair will be deducted from his pocket money. This will ensure that the kid is responsible about his riding to save his pocket money!

The part of the pocket money that goes for the repairs, is what we know as Deductibles in Insurance.

On our mission to simplify insurance, we have often met customers trying to understand what else can be simplified or changed.

And one major complain that has always hit us, is that insurance companies are not always transparent or upfront about the terms. Customers feel that they are only told half a truth about claims, and when time comes not everything is taken care off by the insurer, like promised. However, your insurer will probably tell you that your policy document has a term called deductibles, which explains this part of the bargain.

But, oh boy, the pain of going through a 50 pager!  😔 And hence, it’s time we break this down for you.

After all, imparting knowledge is the step towards change!

Deductibles as the name suggests, is a cost-sharing arrangement between you and your insurer, where a portion of the claim must be paid by you. Still confused? Let’s understand this with the help of an example. 

Suppose your car insurance claim amount is of Rs.10,000.  After considering depreciation, if you have a deductible of INR 1000 , then the Insurer is liable to Pay INR 9000 and the rest of the Rs.1000 has to be paid by you.

Now there are 2 types of deductibles that come in to play: Compulsory or Voluntary

Compulsory deductible is one where the insured has no choice but to has pay one part of the claim.

As per IRDAI regulations, the compulsory deductible is INR 1000 if the Car is not exceeding 1500 Cubic Capacity and INR 2000 if the Car has Cubic Capacity greater than 1500.

A compulsory deductible doesn’t affect the premium or have any impact in lowering it, as premium is calculated taking into conideration other factors like IDV, make and model.

Voluntary deductible is one where you can take a hit on your pocket and pay a part of the claim, which was technically supposed to be taken care of by your insurer. But because you have voluntarily opted for this, your premium gets lowered. You have options from which you can chose the voluntary deductible.

And during the time of claim the amount of compulsory and the voluntary deductible both get deducted from your admissible claim amount These are applicable for each and every claim.

So, you ask why deductibles?

We say, because it instils a greater sense of responsibility while handling your assets and is a joint pact between you and your insurer.  It makes you cautious about handling your assets and therefore in turn helps you in using your assets better.

And this can also help you save on your insurance premium. But that’s only when you know that the amount for voluntary deductible you are opting for is well-within your reach.

In a way, Deductibles is a way of making you value your assets more!

Team Digit

Digit is a General Insurance company on a mission to Make Insurance Simple for people. We are backed by Fairfax, one of the largest insurance companies in the world.

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