Insurance

What is Zero Depreciation cover on Your Car Insurance Policy?

Depreciation is the timely reduction in an asset’s value. This stands true for your automobiles also. As time passes, the value of a car and its parts also decreases. This is what depreciation means in car insurance. The price of a six-month-old car is always lesser than that of a brand new car of the same make and model. Depreciation is associated with materials used to make a car like metal, glass, steel, rubber, copper, special fibres, plastic, etc., and the rate of depreciation of all these materials is different. The Indian Insurance Regulatory and Development Authority (IRDA) has fixed some guidelines to calculate the depreciation on parts as it is a factor in determining your car insurance premium. It is as follows:

Type of parts Depreciation rate
Plastic, nylon, & rubber parts; tyres & tubes, batteries, & air bags 50%
Fibreglass components 30%
Glass Nil
Wooden & metallic components

(Source: IRDAI)

The depreciation is calculated based on the age of the vehicle mentioned in the table below

AGE OF  VEHICLE % OF DEPRECIATION
Not exceeding 6 months Nil
Exceeding 6 months but not 1 year 5%
Exceeding 1 year but not 2 years 10%
Exceeding 2 years but not 3 years 15%
Exceeding 3 years but not 4 years 25%
Exceeding 4 years but not 5 years 35%
Exceeding 5 year but not 10 years 40%
Exceeding 10 years 50%

 (Source: IRDAI)

Looking at the crazy traffic on Indian roads, there are high chances of your car bumping into another vehicle. This would result in repair expenses and increase your financial liability. When a situation arises wherein the parts of your car need to be replaced, the insurance company will only compensate for the depreciated value of the car parts and you would have to shell out the remaining yourself. Thus, to be able to take advantage of your comprehensive car insurance policy, you should go ahead and avail an additional Zero Depreciation cover. This will help you in the unfortunate event of an insurance claim and help you obtain maximum reimbursement.

 Zero Depreciation cover explained

In case your car meets with an accident, the insurer covers the damages sustained by your car. However, the amount you receive is minus the standard depreciation rate of the car parts.

However, if you opt for the Zero Depreciation add-on, the insurance company compensates you for the full value of the car parts without considering depreciation. You can usually avail this cover only if your car is new. If you don’t already have the Zero Depreciation cover, you can do so during policy renewal as well.

Difference between a zero depreciation and regular car insurance cover

Cover with Zero Depreciation add-on Regular cover
There is an additional premium cost The premium payable is lower as you have not incorporated the add-on
You should avail this cover if your car is new This cover can be availed for an old car as well as a new one
The insurer bears the full cost of the damaged car parts The insurer only bears the depreciated cost of the damaged car parts
You receive full compensation and the claim settlement is not affected You receive your claim amount after standard deduction of depreciation

Advantages of Zero Depreciation cover

  1. Zero Depreciation cover helps enhance your existing car insurance policy and helps you save your money
  2. Your expenses are reduced to almost zero
  3. Zero Depreciation cover is not only beneficial to amateur drivers but also for experienced ones as it offers financial protection in case of damages or losses incurred as a result of an accident
  4. The cost of replacing the insured parts is compensated without considering depreciation

A lot of insurers might offer you the Zero Depreciation cover. However, make sure that you purchase it from a trustworthy insurance provider only. Go through online reviews or ask people around about their experiences with a particular insurance company. Also, to get the best deal available, calculate premiums online using an online car insurance calculator before you make your purchase.

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