Excess or deductible in car insurance is the amount to be borne by the insured customer at the time of claim. Each car insurance policy has a compulsory deductible or excess which is to be borne by the insured customer at the time of claim settlement and the remaining claim amount is settled by the insurance company.
Car insurance deductibles are the amount you have to pay out of pocket for an accident before your insurance company starts paying for damages. The deductible is calculated by taking the cost of your premium and multiplying it by the percentage of coverage you have. The higher your deductible, the lower your monthly premium will be.
Table of Contents:
What are Deductibles in Car Insurance?
A deductible is the amount you have to pay out of pocket before the car insurance covers you. For a policy, the deductible is typically calculated per claim. For example, if you file a claim for damages worth Rs. 15,000 and the deductible is Rs.1,000 – you will have to pay Rs. 1,000 towards the repair and the insurer would pay the rest.
Increasing the amount of voluntary deductible is a way to reduce car insurance premiums, but can also mean higher out-of-pocket expenses. Therefore, you should choose only as much deductible as you can afford to pay out of pocket.
If you have decided to go with a voluntary deductible, it's important to consider whether the amount will have an impact on your income or on your budget. It is also important factor in how much credit you can or cannot get in the future.
How does Car Insurance Deductible Work?
The amount of your deductible depends on the type of policy you choose, but there are no annual deductibles. You will be responsible for this cost whenever you submit a claim. Once you pay the deductible, insurance company will pay the repair cost or claim amount balance.
Here is an example of how car insurance deductible works:
- You have a deductible of Rs. 5,000 and Rs. 30,000 in damage from covered accidental damage.
- The insurance company might pay Rs. 25,000 to repair your car, while you are responsible for paying the remaining Rs. 5,000 from your pocket.
| Voluntary Deductible |
Compulsory Deductible |
| Selected by the customer |
It is mandatory, and the IRDAI fixes the amount |
| Higher the voluntary deductible, lower the premium amount |
Since it is a fixed amount, there is no impact on the premium amount |
| During claims, you have to pay both voluntary and compulsory deductible |
Only the compulsory deductible amount has to be paid by you |
Understanding Voluntary & Compulsory Excess in Car Insurance:
Many times you might have heard or read that your car insurance premium can be reduced by opting for higher excess or deductible. Deductible or excess is the amount you are willing to pay from your own pocket at the time of claim.
Let us understand the Compulsory & Voluntary deductible concept with an example:
“Mr. Ajay has purchased a car insurance policy with Compulsory deductible amount as Rs.2000 and had also opted for Voluntary deductible of Rs.5000 at the time of purchasing the policy. One bad day while travelling on the highway during the monsoon season he met with an accident and the front part of his car was damaged due to the impact.
He has approached the insurance company for claim settlement and the final claim settlement amount was arrived to Rs.25, 000. Now the Voluntary deductible of Rs.5000 and the Compulsory deductible of Rs.2000 are to be borne by the insured as agreed at the time of taking the policy.
So the total amount to be paid by the customer is Rs.7000 and the remaining amount of Rs.18000 will be paid by the insurance company. In short the risk bearing capacity of the customer at the time of claim is called as Deductible, this concept is introduced to prevent petty claims and increase the accountability of the customer.”
Type of Deductibles in Car Insurance:
Two types of deductibles may be part of your car insurance policy:
- Voluntary deductible that you can opt for
- Compulsory deductibles that are imposed by the insurance regulator.
Let us look at each of them in detail.
1. Voluntary Deductible in Car Insurance:
The voluntary deductible or excess is the amount agreed to be paid by the insured at the time of claim settlement and the remaining claim amount will be settled by the insurance company. The first party car insurance covers the loss or damage to the insured’s car due to fire, act of god perils such as cyclone floods, malicious damage, theft, earthquake, accidental external means etc.
The voluntary excess is the way of bearing more percentage of the claim amount at the time of an accident. Below are the discounts offered to reduce the own damage premium in case of car insurance:-
|
Voluntary Deductible |
Discount |
| Rs.2500 |
20% on the OD premium, subject to a maximum of Rs.750/- |
| Rs.5000 |
25% on the OD, subject to a maximum of Rs.1500/- |
| Rs.7500 |
30% on the OD, subject to a maximum of Rs.2000/- |
| Rs.15000 |
35% on the OD, subject to a maximum of Rs.2500/- |
2. Compulsory Deductible/Excess in Car Insurance:
Compulsory deductible or excess is mentioned in every type of insurance policy and the amount varies from one insurance product to the other. The compulsory deductible in car insurance is applicable for each and every claim at the time of claim settlement. Insurance companies release the payment only after the customer has paid for the compulsory deductible or excess. The compulsory deductible in car insurance is as mentioned below:
| Type of Car |
Compulsory Deductible or Excess |
| Private Car with cubic capacity less than 1500cc |
Rs.1000 |
| Private car with cubic capacity exceeding 1500cc |
Rs.2000 |
Car insurance calculation can be used to reduce the premium if you opt for higher voluntary excess or deductible. The higher deductible you opt for, the lower would be the premium. Voluntary deductible is the amount of claim which you would bear at the time of claim settlement.
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How to Deduct Car Insurance Taxes?
Deduct all your business-related vehicle expenses, including your car insurance premium, or deduct an amount based on the actual miles you drove for your business using a cents-per-mile rate. These are known as the Actual Expenses method and Standard Mileage method, respectively.
You can choose either method or change from year to year without penalty. You can tally your expenses based on both methods and then choose the one that yields the higher deduction. Keep in mind that you can only use one method. If you do choose the Actual Expenses method, you can generally deduct the following from your taxes alongside your car insurance premium:
- Fuel and oil
- Car repairs
- Depreciation
- Lease payment
- Registration fees and licenses
- Tolls and parking fees
Tips for deducting car insurance from your taxes
- Separate any personal usage
- Track mileage
- Hold onto receipts
- Keep your records.
Ways to Reduce Car Insurance Costs:
- Shop around
- Before you buy a car, compare insurance costs
- Ask for higher deductibles
- Reduce coverage on older cars
- Buy your homeowners and auto coverage from the same insurer
- Maintain a good credit record
- Take advantage of low mileage discounts
- Ask about group insurance
- Seek out other discounts.
Frequently Asked Questions:
Is Paying a Voluntary Deductible Avoidable?
No, if you have agreed to it at the time of buying your car insurance. Whenever you file a claim, you have to pay the deductible. There may be no deductible for specific insurance add-ons such as roadside assistance.
Is Car Insurance Deductible on Taxes?
Car insurance can be deducted on your taxes if you meet specific requirements, such as running a self-employed business that uses the car only for work-related purposes. However, if your car is being used strictly for personal purposes, you cannot claim any tax exemption. If your company has a vehicle on the business, you may be eligible to claim a tax deduction for your insurance costs. You'll need to prove that any costs or expenses made are strictly related to your business needs.
Suppose your car is used for business as well as personal purposes. In that case, you can claim deduction on insurance paid proportionately, i.e., only for the part it was used for business travel. For example, if a car was in use for 500 kilometers in a given month and exclusively used for business purposes for 300 kilometers, you can claim a deduction for 300 kilometers.
Do you pay a deductible if you hit another car?
There are a few different coverages on your policy that can respond to you hitting another car when you're the one at fault for the accident. Your bodily injury liability will pay for the damages to the other party, and your property damage liability will repair any of your own car's damages. This is only true if you have collision coverage. If you do, then your insurance company will take care of everything, even the deductible - but only if you were in an accident.
When Do You Pay A Car Insurance Deductible?
A deductible is the amount that you have to pay per claim before the insurer pays for the rest. So, if you file a claim for Rs 10,000 and the deductible is Rs 1,000 – the insurer will only pay Rs 9,000 and you will have to pay the rest out of your pocket.
Can you claim car insurance deductible on taxes?
The car insurance premium is tax-deductible when it is used for business purposes. As compared to a car used for personal needs, a car used for commercial purposes can be at a higher risk of accidents and damage.
Conclusion:
The level of deductible you can choose from is determined by how much risk you're comfortable with from a financial standpoint. When selecting a deductible, consider if you are able to provide a sufficiently large emergency fund. If it is not, cash out your fund before choosing a deductible that will incur more charges.
Another consideration when estimating costs for car insurance is the value of your vehicle. If you have an expensive car the premium will be more expensive, so it may make sense to opt for a small deductible in order to save on the premium.
To avoid being penalized for your insurance premium rising with each new claim, you should opt for a deductible which is the same as the sum you would stand to pay in premiums. That way, you wouldn't have any disadvantages from small claims compared to one large; not that it would make any sense either way.