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august 2016 year
august 2016 year
exclusively for journal "Business"

CASCO Insurance Deductible Amount – Things You Need to Know

exclusively for journal "Business"

There is an easy way to pay less for CASCO insurance – that is to set high deductible amount. However, there is another side to the story. In case of insured event the Insured is bound to bear more expenses to cover it from his own pocket. This article is aimed at explaining the essence of deductible amount, its influence of the insurance rate and claim settlement process.

Except in rare circumstances the Insured always has a right to choose the deductible amount which suits him the most. The insurance companies welcome the desire of their clients to pay more for the better insurance coverage under the policies.

How to choose a deductible?

In terms of insuring corporate vehicle fleet 0 deductible amount is not the best option, to our mind. It’s recommended that CASCO insurance agreement be concluded with the minimal possible deductible amount with the drivers being liable to cover the difference. That serves as additional incentive for them to drive more carefully and avoid claiming more losses than necessary. Clear claims history ensures the discount for the contract renewal as well as ongoing business process since the corporate vehicles should be operating instead of being repaired at the maintenance stations even despite the fact that an insurance company is paying for it.

If drivers’ welfare is the bigger concern of yours, conditional deductible amount can be of use in that case. Unconditional deductible amount is paid by the Insured irrespective of the loss amount, type of damage or any other circumstances. Conditional deductible amount is subject to payment by the Insured only upon the certain conditions. For example, in accordance with certain clauses of the agreement the deductible amount can be covered by the insurance company if the Insured is not the party responsible for a traffic accident. If the driver is to blame, then the Insured has to cover the deductible amount. Of course, the company is free to set the internal regulations under which the damage will be paid for by the driver in the sum of the deductible amount.

Сlaiming over two losses during the term of insurance policy makes 0 % deductible amount agreement a better choice
As to the personal vehicles, the situation is a bit different. If you are an experienced driver and will probably not claim more than one insured event per year, the best option for you is the CASCO agreement with 0.5 % or even 1 % deductible amount. Of course, that is not a strict pattern. It well may be that you claim one loss in three years or three losses in one year.  Judging by our experience, paying for the insurance agreement with 0.5 % deductible amount and claiming one loss with paying the deductible amount accordingly is still cheaper than paying for the insurance agreement with the deductible amount 0 % from the very beginning. However, claiming over two losses during the term of insurance policy makes 0 % deductible amount agreement a better choice. 

Another recommendation is to insure expensive vehicles with 0 % deductible amount. Usually deductible amount is set as the % of the vehicle’s value. In rare cases it is a certain fixed amount. This means that if a vehicle is worth UAH 100,000, the 0.5 % deductible amount will be equal to UAH 500. For more expensive vehicle, let’s say UAH 1 mln. worth, the corresponding number will be UAH 5,000.  Logic runs that the same type of damage to cheap and expensive vehicle will result in different repair expenses, though the correlation is not direct in this case. The indemnity is almost the same if we are speaking about the cost of repair rather than spare parts replacement. Here is an example.  Coloring of one spare part of a cheap vehicle costs around UAH 3,000.  With the deductible amount being equal UAH 500 the insurance indemnity will sum up to UAH 2,500. The corresponding repair cost for the expensive vehicle is UAH 3,500-4,000. However the Insured is not entitled to any insurance indemnity with the deductible amount being UAH 5,000.

Please be aware that the deductible amount for risks of theft and total loss can differ from the partial damage deductible amount. Normally it is set at the level of 5 or 10 %. That’s why it’s reasonable to negotiate the unified deductible amount beforehand.