In any insurance policy, a deductible is any expense that the policyholder must pay out of pocket before the insurer pays the expenses. It is also used to describe the clauses that are used as the policy payment threshold. There are actually two types of such clauses in a car insurance policy, namely the mandatory franchise clause and the voluntary franchise clause.

The deductible or franchise is an amount that the insured agrees to pay out of pocket with the balance paid by the insurance company. This is in the event that a claim arises and the amount is determined in advance in discussions between the insurance company and the insured.

To take an example of a claim, if the deductible on a car insurance policy is INR 5000 and a claim for INR 15,000 arises, then the insurance company would pay INR 10,000 while deducting INR 5,000 from the insured.

The mandatory franchise clause in car insurance is something that the insured cannot predetermine. This is compulsorily deducted for each claim from auto insurance companies. The amount to be discounted is set in advance depending on the type and condition of the car. Any claims that arise are paid after the deduction has first been made. If this type of clause is mandatory in an auto insurance company, then the voluntary franchise clause is a completely optional matter, since an amount is deducted from the insured’s pocket for each claim anyway. Therefore, taking a voluntary option is entirely up to the policy holder.

The advantage of opting for a voluntary deductible even after the mandatory clause has been evoked is that the premium paid is reduced in the policy. The premium has a part called ‘self-harm’ to which the discount is applied. The higher the amount of the voluntary deductible clause, the more discounts the insurance companies will give you in the premium. However, it is important to understand that while your premiums are lowered when you opt for a high voluntary excess deductible, should a claim arise, your out-of-pocket costs will also be higher. Therefore, it is better to choose an excess deductible clause that you can easily pay in the event of a claim. The higher the deductible, the higher your out-of-pocket costs should a claim arise, and if a large amount is not possible on short notice, it could put you in an awkward position.

A franchise and franchise clause has its pros and cons, both long and short term, which should be taken into account before deciding on it.

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