Deductibles, Excess and Franchise
The part of each loss the insured keeps, and the three ways a policy can set it.
A deductible is the slice of each loss the insured carries before the insurer pays anything. If a Bengaluru rider's two-wheeler needs ₹12,000 of repairs and the policy has a ₹1,000 deductible, the claim is ₹11,000 (before any depreciation the policy applies).
Deductibles do three jobs. They keep small, frequent claims (which cost more to handle than they pay) off the books, they give the insured a reason to look after the property, and they lower the premium. IRDAI requires every retail general policy to state its deductible or excess, and the Customer Information Sheet must explain how it is applied, coverage by coverage.
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The Terms
- Deductible
- A fixed amount or percentage taken off every claim. In IRDAI's words it is the amount of loss borne by the policyholder, which reduces the claim.
- Excess
- Used in India and the UK market to mean the same thing as a deductible: the first part of each loss paid by the insured. IRDAI's circular uses the two words together.
- Franchise
- A threshold rather than a deduction. Losses below it are not paid at all; losses above it are paid in full. A ₹5,000 franchise pays nothing on a ₹4,000 loss and the full ₹9,000 on a ₹9,000 loss.
- Compulsory deductible
- A deductible built into the product that the insured cannot remove.
- Voluntary deductible
- An extra deductible the insured chooses to carry on top of the compulsory one, usually for a premium discount. Common in private car and two-wheeler policies.
- Time deductible
- A deductible measured in time, used in business interruption and machinery loss of profits covers: the first few hours or days of stoppage are not paid.
- Aggregate deductible
- A deductible that applies to the total of all losses in the policy year rather than to each loss.
- Co-payment
- A health insurance feature: the insured pays a fixed percentage of every admissible claim, rather than a fixed amount. Not the same as a deductible.
Deductible vs Franchise: The Same Losses, Two Ways
Illustration with a ₹5,000 deductible and a ₹5,000 franchise.
₹3,000
Claim with ₹5,000 deductible
Nil
Claim with ₹5,000 franchise
Nil
₹5,000
Claim with ₹5,000 deductible
Nil
Claim with ₹5,000 franchise
Nil (depends on whether the wording says "exceeds" or "equals or exceeds")
₹20,000
Claim with ₹5,000 deductible
₹15,000
Claim with ₹5,000 franchise
₹20,000
₹2,00,000
Claim with ₹5,000 deductible
₹1,95,000
Claim with ₹5,000 franchise
₹2,00,000
| Assessed loss | Claim with ₹5,000 deductible | Claim with ₹5,000 franchise |
|---|---|---|
| ₹3,000 | Nil | Nil |
| ₹5,000 | Nil | Nil (depends on whether the wording says "exceeds" or "equals or exceeds") |
| ₹20,000 | ₹15,000 | ₹20,000 |
| ₹2,00,000 | ₹1,95,000 | ₹2,00,000 |
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How It Works by Line
- check_circleMotor: own damage claims carry a compulsory deductible, and the insured can opt for a voluntary deductible for a lower premium. The rupee amounts in older study material come from the India Motor Tariff; each insurer now sets them in its own filed product. Deductibles apply to own damage, never to third party liability.
- check_circleFire and property: commercial policies usually carry a deductible per claim, often a percentage of the claim with a minimum amount. For a Surat textile godown it is applied after the loss is assessed and after any underinsurance.
- check_circleEngineering: contractors' and erection covers often carry higher deductibles for acts of God perils, such as flood on a Pune construction site, than for other losses.
- check_circleHealth: a policy may carry a deductible (a fixed amount the insured bears before the insurer pays) and, separately, a co-payment (a percentage of each claim). Both must be stated in the policy.
How IC-11 Tests This
Expect "the main purpose of a deductible" (discourage small claims and give the insured a stake in the risk) and short calculations. The trap is franchise vs deductible: a franchise pays the whole loss once the threshold is crossed, a deductible never pays its own amount. A second trap is the order of calculation: assess the loss, apply underinsurance, then take off the deductible.
FAQs
What is the difference between a deductible and an excess?expand_more
In Indian practice they mean the same thing: the first part of each loss that the insured bears. IRDAI's master circular uses "deductible or excess" as one term.
What is a franchise in insurance?expand_more
A threshold: losses below it are not paid, and losses above it are paid in full without any deduction. It differs from a deductible, which is always subtracted.
What is a voluntary deductible in motor insurance?expand_more
An extra deductible the policyholder chooses to bear on own damage claims, over and above the compulsory one, in exchange for a lower premium.
Is co-payment the same as a deductible?expand_more
No. A deductible is a fixed amount borne before the insurer pays; a co-payment is a fixed percentage of each admissible claim borne by the insured.
Next steps
- Policy Conditionsarrow_forward
- Condition of Averagearrow_forward
- Motor Claimsarrow_forward
- IC-01: Principle of indemnityarrow_forward
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