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Frequently Asked Questions

What is Deductible in Life Insurance Plan?

Deductible refers to the amount of insured loss that you have to retain. The insurer will only pay for the loss if your loss exceeds the deductible amount. Generally, more the deductibles involved in a policy, the lesser will be the premiums that you need to pay.

Deductibles apply to the defined contribution insurance plans and not defined benefit insurance plans like life insurance policies. The following policies may include deductibles:

a) Health Insurance
b) Car insurance
c) Property Insurance
d) Marine Insurance

Why do these Policies have Deductibles?

Insurance is built based on 7 principles. One of the principles is loss avoidance and minimization. This principle governs that the insured must take all the necessary precautions and try to avoid or minimize the loss.

But the risk involved here is that some people might behave carelessly knowing that they have insurance. To remove this moral hazard deductibles are used. Since, the policyholder will also be responsible to bear part of the costs, he may not be as reckless and will try to avoid the loss.

Also, if the insurance is specifically designed to meet huge expenses, losses. Without deductibles, they will be put in a position to cover everything. Deductibles provide a safety cushion for companies since they only have to pay when the amount exceeds the deductibles.

Example of Deductible in Life Insurance Plan

You have a car insurance worth Rs 15 lakhs on a new vehicle. A minor fitting worth Rs 1000, which the policy covers needs to be replaced. The policy has a deductible of Rs 5000. Thus, you will need to pay for the part out of your pocket.

However, if the replacement cost was Rs 10,000 the insurer will pay the entire sum after applying depreciation on vehicle age.