Deductible vs Excess? Compulsory vs Voluntary?
Be it motor, health or property insurance, you have probably encountered the terms excess and deductible at the time of buying your insurance policy – or, at the time of a claim (which would likely be a surprise to you, in that case.) But, what do these terms mean? Is there any difference between them?
In motor insurance, according to the IRDAI “Handbook on Motor Insurance” which serves as a guide on motor insurance, the terms “excess” and “deductible” are used interchangeably and meant to convey the same meaning. Hence, it is also the case with the usage of these terms by insurance companies in their motor insurance policy wording.
But generally speaking, an excess is usually assumed to be a large amount as compared to a deductible. In health insurance, such excesses are commonly expressed as a percentage.
Around the world, technically, an excess is the amount which the insured has to bear but it does not affect the overall policy limit.
For example, if an insured has a policy of Rs. 1 Lakh wherein the excess is Rs. 10,000, in case of a claim of Rs. 1.1 Lakhs, the insurance company will pay a total of Rs. 1 Lakh, but after the insured has borne the excess of Rs. 10,000.
In case of a deductible, the overall policy limit is reduced by the amount of deductible. Again considering the same example, the insurer would pay a claim of only Rs. 90,000, as the policy limit of Rs. 1 Lakh is reduced by the deductible of Rs. 10,000 which is borne by the insured.
Compulsory & Voluntary deductible in Motor Insurance
Your motor insurance policy requires you to bear a minimum deductible which can range from Rs. 100 to Rs. 1000 depending on the Cubic Capacity (cc) of your vehicle. This is called the compulsory deductible and is standard in any motor insurance bought from any insurer in India.
But, in addition to this, you can opt for a further voluntary deductible ranging from Rs. 2,500 to Rs. 15,000! Why would any sane person do that, you wonder? Well, there are two reasons why you should. One, you want a efficient insurance experience, and two, you want your insurance to be affordable. In either case, the most important thing you need to be aware of is your ability to bear the cost of the deductible in case of a claim.
These deductibles i.e., Compulsory Deductible and Voluntary Deductible are stated in IMT 22 and IMT 22A where IMT stands for India Motor Tariff.
The word Deductible is described in the policy conditions as:
The Company shall not be liable for each and every claim under Section -1 (loss of or damage to the vehicle insured) of this Policy in respect of the deductible stated in the schedule.
The words Excess and Deductible are different and have different functions in Insurance. They may appear same but are drastically different. The difference between these two words is the same as the difference between the sky and earth. While the insured has absolutely no notion as to what Excess is and what are its functions. The same holds true with Deductible. Using these words interchangeably and using these words without any reference to policy document i.e., policy wording may be misleading.
Deciding on the right deductible may seem challenging. Hence, before you buy a motor policy or renew your existing one please make sure to reach out to us to learn more about this and help us help you secure the right coverage for your needs!
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