What you should know about deductibles
Is premium ฿500/mo. truly best deal?
The car insurance market has been extremely competitive this year, driving premiums down to new lows.
This is usually good for the consumer, but when you see 1st class insurance advertised for only 500 Baht per month or 6,000 Baht per year, could it be too good to be true?
So how can they quote such a low price when everyone else is charging around 11,000 baht for the same coverage?
We were curious so we clicked one of the ads. As advertised, the premium quoted was indeed around 6,000 Baht per year, but when you look into the details, the insurance policy proposed also had a massive deductible of 5,000 Baht!
For those who don’t know what that is, a deductible is the amount that you, the policy holder needs to pay out of your pocket before the insurance company pays any of the claim expenses.
To give you an example: let’s say you got into an accident where you were either at fault. You take your car to the garage and the total cost of repairs is 8,000 Baht. If you bought the policy that was advertised, you would be paying the garage 5,000 Baht (the deductible amount) before the insurance company pays the remainder (in this case 3,000 Baht).
Many years ago, insurance companies came up with the idea of deductibles to reduce the burden of processing small claims. Their logic was quite simple, if the claim amount is small, customers would pay that amount out of their pocket instead of bothering the insurance company. This helps reduce the number of small claims processed by the insurance company (thus saving on administrative costs) and screens out customers that like to file a lot of small claims (thus saving on claim costs).
To make it worth the customers’ while, an agreement was made between the members (insurance companies) of the Thai general insurance association that every Baht deductible opted by the customer (up to 5,000 Baht) would go towards an equivalent reduction in the insurance premium. Using the ad as an example, the original premium was likely 11,000 Baht, but because of the 5,000 Baht deductible, the premiums were reduced to 6,000 Baht.
If you do the math, this means that if you claim only once, the total cost to you would be 11,000 Baht or the amount you would have originally paid, and only 6,000 Baht if you didn’t claim that year.
Still sounds pretty fair, so why do customers hate deductibles so much?
If you didn’t file a claim that year, or if you filed a small claim, the business case does indeed makes sense. BUT if you claim more than once or get into a major accident, the business case looks a lot less attractive:
• The deductible is applied every time you file a claim, so if you claim multiple times, you will be paying up to 5,000 Baht each time
• If you get into a major accident and at fault, the insurance company will likely break the claim into multiple claims resulting in you paying the deductible multiple times
Consumers typically purchase insurance for peace of mind, in this example, 11,000 Baht to cover anything that happens to their car. 500 Baht per month does seem like a great deal, but you may end up spending a lot more if you’re unlucky that year. At the end, the choice is yours, but is saving 5,000 Baht upfront worth you worrying every time you drive?