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What is an Insurance Deductible?

An Insurance deductible is an amount which the policyholder will have to shell from his pocket for repairs in the event of loss or damage. Only after this, will the insurance policy come into play. The insurer will pay for the losses as per the limits pre-defined in the policy.

Deductible in other words, is the share of the policyholder in the claim amount. It is amongst one of the conditions of acceptance of the insurance contract.

Say, you get your office building, equipment, and other fixtures covered. The insurer clarifies that a claim up to Rs.1 lac will have 1% of the claim amount or Rs.10,000 (whichever is higher) applied as a deductible. A fire occurred and a loss of Rs.75000/- was intimated. Now, as per the insurance policy, Rs.10,000 will be applied as the deductible.


How does Insurance Deductible Work?

An Insurance deductible is to support you when there occurs a loss which is huge and beyond the capacity of your pocket. There is a limit to expenses which we can bear in our daily lives. Same goes with the insurance of the assets.

You have a car worth Rs.10 lakhs and you buy insurance for it. The insurance premium is Rs.55000/- and the deductible as mentioned is Rs.15,000/-. Now, to this, you agree that you can bear any claim till Rs.15,000. But beyond this, you need the support of insurer to take care of expenses above this amount.

Here Rs.15,000 is the deductible which you as the policyholder can afford. It also means that up till this amount, you can have self-insurance of the risk.

Presume that your car gets a bang on in the extremes of the traffic. There is no way you could manage a saviour and there rips off the bumper of the car along with the rear camera. The total loss including the bumper and the camera costs to Rs.40,000/-. As per the condition of the insurance contract, the first Rs.15,000 will be managed by you. But the remaining Rs.25,000 will be paid by the insurer.


What happens when the claim amount is less than the Deductible?

If the claim amount is less than the deductible mentioned in the policy, then the claim will not be admissible. This implies that the role of the insurer will not come into the picture when the claim amount is less than the deductible.

Another angle to the substance is that you should be aware of your policy and deductible which indicates the money you will have to bear at the time of claim.

It is good to understand factors like age, susceptibility to damage, history, and the present condition of the asset that you're getting insurance for.

Presume your vehicle which you bought 10 years ago, is no longer in good condition. The car is old and not that fuel efficient now. In these years, despite no fault of yours, you had asked for the claim. In such a situation, even after 10 years, the possibility of claim may be high or low. You must think of the deductible when you get the insurance when the value of the vehicle reduces.

With time, the insured value of the vehicle also depreciates but the repairs of parts like bumper will attract price as per the latest installations. This will force you to spend the same amount for repair even when the value and premium have reduced over time.

Types of Deductibles in Car Insurance

A car is one of the most valuable assets which we buy from the hard-earned money. Every insurance policy comes with a deductible, that is, the portion of the claim which the policyholder will incur. Deductible under car insurance implies Compulsory Deductible or Voluntary Deductible.


Compulsory Deductible

The fixed amount which you will pay at the time of loss even before the insurance policy pays, it is compulsory deductible. It is mandatory in India to buy at least a third-party car insurance policy and so is the deductible. A Compulsory deductible is fixed generally based on the type of the vehicle.

Sheetal owns a two-wheeler -a Honda Activa. The cubic capacity of the vehicle is 109.2. She got her vehicle insured in which the compulsory deductible applied for the 2 wheelers, with less than 350 cc, is Rs.50/-. Now in the event of loss, as per the application, this amount will be deducted from the total settlement amount.

Similarly, for the four wheelers, the compulsory deductible is applied as:

  • For cars with a cubic capacity less than 1500, it is Rs.500/-
  • For cars with a cubic capacity more than 1500, it is Rs.1000/-

Voluntarily Deductible

When we can voluntarily choose the limit of deductible, it is referred to as Voluntarily Deductible. On choosing the higher deductibles, the insurance premium can be reduced considerably and vice versa.

We buy things that suit our pocket capacity. Don’t we always buy a smartphone which is affordable, worthy of buying, not heavy on our savings, and durable?

Similarly, voluntary deductible under car insurance is chosen to keep in mind our capacity to bear the expenses at the time of loss. Before choosing the deductible, we think about:

  • Our savings
  • Level of the risk, premium
  • Value of the vehicle, and
  • Type of the coverage

Consider a 20 years old car which was insured under the Third-Party Liability cover only. Now the deductible for such a proposal in case of own damage will be completely borne by the policyholder. As explained with the insurance deductible definition, for the old vehicles which are not much under use, the deductible can be borne by the policyholder.

Types of Deductibles in Health Insurance

Wondering whether health insurance also has a deductible? The answer is yes. Health Insurance also has two kinds of deductibles applied: one is compulsory, and second is voluntary. The application in health insurance is same as explained in car insurance.

In the initial years, one can go for a higher deductible and completely claim free. It improves the claim ratio and bonus under health insurance. Ultimately, the policyholder will have a decent Sum Insured in the later years.

Difference between Compulsory Deductibles and Voluntary Deductibles

Compulsory Deductible

Voluntary Deductible

The excess amount that is fixed by the insurer which the insured will bear in the claim amount.

The excess amount that is fixed by the insurer which the insured will bear in the claim amount.

Compulsory Deductible does not affect the premium.

Voluntary Deductible affects the premium directly. Higher deductible means lower premium and vice versa.


Taking a deeper insight into how deductible plays can help in managing finance at the time of emergencies.