De-jargoned | Deductible

De-jargoned | Deductible
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First Published: Mon, Jan 11 2010. 08 57 PM IST
Updated: Mon, Jan 11 2010. 08 57 PM IST
What is it?
Did your insurer ask you to foot Rs500 before giving you a single rupee when you made a claim for your smashed car? Well, this is called a “deductible” that you may not have noticed when signing the form. It is that part of the loss that you agree to bear in case of an accident or damage to the insured object. Here, a car.
How it works?
Deductibles can be fixed or a percentage of the claim amount. In a car insurance, deductible is fixed at Rs500 per claim. But in fire insurance (a major component of householder’s policy), you need to pay Rs10,000 or 5% of the claim amount, whichever is higher. If the claim is less than Rs10,000, the insurer won’t pay you anything.
The concept
Sounds unfair? Did you know that the percentage of car accidents are higher in states where seat belts are mandatory. A feeling of safety makes people reckless. The same logic applies to insurance. The fact that the car is covered may induce people to take risk. The fact that you have to pay something in case of damage, may make you more careful. If only the agent would tell you about it.
Discounts
You get a discount if you opt for a higher deductible. If you chose to pay Rs2,500 as deductible in your car insurance, your premium could reduce by 20%, up to Rs750. Raise it to Rs5,000 and you get a discount of 25%, up to Rs1,500.
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First Published: Mon, Jan 11 2010. 08 57 PM IST