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Understanding Excess and Deductibles on Your Car Insurance Policy

17th March 2021 8min read 627 views

Everybody knows the importance of buying general motor insurance. But, understanding all the terms, phrases and jargon can be difficult. If you own a vehicle, you may have come across the terms ‘excess’ and ‘deductible’ in your policy. So, what do these terms mean, and how does it affect you? Let’s find out!

What Is Excess?

Excess insurance is another term for a deductible. Generally, you will have compulsory and voluntary deductibles mentioned in your policy documents. It’s important to remember that excess or deductible isn’t a policy type or an add-on. Instead, it’s a part of the insurance framework. Your insurance provider will look at your excess or deductibles before making any claim payments.

Types of Excess

As mentioned earlier, there are two types of excess or deductibles:

  • 1. Compulsory Excess
    This is the compulsory amount that you, the policyholder, will have to pay whenever you make a claim. The amount is based on the engine capacity of your vehicle. So, the compulsory excess for a claim on a two-wheeler would be INR 100. If you make a claim against a car whose engine capacity is less than 1500cc, the deductible is INR 1000, while that of a car whose engine capacity is above 1500cc is INR 2000.
    This compulsory deductible is also known as mandatory excess and the amount cannot be changed by the policyholder. The mandatory excess is put in place to dissuade vehicle owners and policyholders from making minor claims.

  • 2. Voluntary Excess
    On the other hand, voluntary excess is an amount that the policyholder can choose to pay over and above the mandatory excess. Typically, the policyholder agrees to pay a certain amount, above the amount of the compulsory excess insurance, every time a claim is made. In exchange, the insurance provider could offer the individual a voluntary excess discount on the premium amount.

How Does Voluntary Excess Work?

If you have decided to opt for voluntary excess on your car insurance policy, you will need to know how it works.

  • Step 1: While purchasing or renewing your policy, let your insurance provider know that you would like to opt for the voluntary deductible option.
  • Step 2: Your insurer will verify the request and discount the deductible amount with you.
  • Step 3: Based on the agreed-upon amount, your insurance provider will calculate your new premium.
  • Step 4: Pay the premium and purchase the voluntary excess car insurance policy.
  • Step 5: At the time of making any claim against the policy, you must pay the compulsory and voluntary deductible amounts for the claim to be settled.

If you aren’t sure whether to opt for a voluntary deductible or not, you should weigh the pros and cons. If you do opt for the voluntary excess, you could enjoy lower premiums. But it could also mean that you will suddenly have to pay the voluntary and compulsory deductible amounts out of your own pocket if you were to meet with an accident in the insured vehicle. Your insurer will deduct both amounts and make claim payments accordingly.

Now that you have all the facts, you can make an informed decision when you have to purchase or renew your car insurance policy.

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