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Your financial guide

In any insurance policy, the deductible is the total cost the policyholder must pay out of pocket before the insurer pays the cost. It is also used to describe any clauses that are used as a limit for insurance coverage. There are actually two types of conditions in a car insurance policy: a mandatory excess clause and a voluntary excess clause.

The deduction or surplus is the amount the insured agrees to pay out of pocket and the balance is taken care of by the insurance company. This is the case if any claim arises and the amount is determined in advance through discussions between the insurance company and the insured.

Let’s take an example of a claim, if the car insurance policy deducts INR 5000 and the claim arises for INR 15,000, then the insurance company would pay INR 10,000 and the insured would be deducted INR 5000.

Mandatory car insurance excess is something the insured cannot determine in advance. Car insurance companies take away this for every claim. The amount to be deducted is predetermined by the type and condition of the vehicle. Any resulting benefits shall be paid first after deduction. If this type of clause is compulsory in an auto insurance company, then the voluntary excess clause is completely optional, as in any case the amount is deducted from the policyholder’s pocket for each claim. Thus, the voluntary option is vested solely in the policyholder.

The advantage of opting for voluntary deduction, even after you have removed the mandatory term, is that the premium paid is lower. The part of the premium known as “own damage” that is subject to a discount. The higher the voluntary deduction amount, the greater the discount insurance companies will give you a premium. However, it is important to understand that even if your premiums go down, if you opt for a large voluntary deduction, if you have claims, your pocket costs will also be higher. So it’s better to choose an excess deductible that you can easily afford in the event of a claim. The higher the deductible, the higher your out-of-pocket expenses will be if you have a claim, and if it is not possible to agree on a large amount in the short term, it can put you in an awkward situation.

The deduction and surplus clause has both long and short term advantages and disadvantages that should be considered before making a decision.

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