How a Zero Depreciation Car Insurance Policy Benefits You during Claims?

Zero depreciation or nil depreciation car insurance policy provides comprehensive coverage for your car against damages caused due an accident without considering the depreciation factor. In case your car gets damaged due to an accident, no depreciation is deducted from the coverage of any body parts of car excluding tyres and batteries. Zero depreciation is an add-on cover that enhances the policy coverage for your car. Obviously, you need to pay a little extra premium, but you will be able to avail the better payback at the time of claims.

Depreciation refers to a reduction in the value of an asset, as it gets older. With each passing day, your vehicle is exposed to wear and tear which leads to depreciation. A new car is thus priced higher than an old car. Each of the body parts has a different rate of depreciation associated with it.

Who should buy?

Buying a zero depreciation car insurance policy in India proves to be beneficial to:

  • People owning brand new cars
  • People owning luxury cars
  • Driving in areas with huge on-road traffic
  • New/ Inexperienced drivers
  • People owing a car with expensive spare parts

How it is different from standard car insurance policy?

In case of a car accident, you file a claim to your insurer and might think that the insurance company will cover the entire cost of repair/ replacement of any of the damaged body parts of the car. However, a standard car insurance policy covers only part of the expenses incurred and the claim amount is payable after considering the depreciation.

According to the Indian Motor Tariff, different depreciation rates are applicable for different parts of your car.

  • For paint work: There is 50% depreciation rate for the material cost of the paint.
  • For rubber/ nylon/ plastic parts, tires and tubes, batteries and air bags: 50% depreciation is deducted
  • For wooden and metallic components: 0-50% as per the age of the vehicle (0% during first 6 months, 5% during 6 months to 1 year, 10% during 1 year to 2 year, etc.)
  • For fiber glass components: 30% depreciation is deducted
  • For all parts made of glass – No depreciation

A standard car insurance policy only reimburses the depreciated value of car parts repaired/ replaced and rest of the expenses incurred need to be borne by your pocket.

For instance, if a replaced part costs Rs 5,000, but upon applying 50% depreciation rate, you will only get paid for Rs 2,500 and you have to pay the remaining Rs 2,500 from your pocket.

On the other hand, a zero depreciation car insurance policy provides a full claim amount without any deduction towards the depreciation on the value of damaged parts. In the event of your claim against the damages caused to your car, you will receive the entire claim amount. You can actually avail this cover for vehicles up to 5 years.

How Zero Depreciation is Beneficial?

Let’s understand the impact of depreciation on claims with an example of 3 year old Honda City. In case of an accident, your car got some parts damaged.

Parts Damaged Cost of Damage (in Rs) Depreciation Applicable (in Rs)
Metal Part 10,000 2,500 (25% of damage cost)
Plastic Part 12,000 6,000 (50% of damage cost)
Fibreglass Parts 4,000 1,200 (30% of damage cost)
Labor 3,000 0
Total 29,000 9,700

Under this scenario, with a standard car insurance policy, you will have to pay Rs 9,700.

Now, let us check how zero depreciation cover insurance policy will benefit you during claims.

Cost Incurred Standard Car Insurance (without zero depreciation) Zero Depreciation Insurance
Basic Premium (I) 14,000 14,000
Zero Depreciation Add-on (II) 0 3,000
Cost of Policy (III= I+II) 14,000 17,000
Deductible per claim (IV) 1,000 1,000
Cost of Repair (V) 29,000 29,000
What you will pay (VI) 9,700 0
Your total expenses during a year (VII= III+IV+VI) 24,700 18,000
Your savings (V-VII) 4,300 11,000

Here, you can infer that you can save an additional amount of Rs 6,700 (Rs 11000-4300) by simply attaching zero depreciation insurance with a standard car insurance policy.

Factors to consider before buying Zero Depreciation Policy

Cost: The cost of a zero depreciation car insurance policy comes with an additional cost. But in the event of a claim, the insurer will pay the entire claim amount without considering depreciation against any body parts of your car.

Number of claims: Usually, the insurers specify the number of times for which you can file claims during a policy year. You need to check the number of claims your insurer is allowing for and choose a zero depreciation car insurance policy that permits you to make several claims during a year.

Age of the car: The zero depreciation car insurance policy is available for new cars that are not older than five years. So, you should consider this aspect before buying the cover.

Exclusions in Zero Depreciation Policy

Following are the conditions that are not covered under this policy:

  • Not available for cars that are more than 5 years old
  • Damage to car engine through oil leakage or water ingression
  • Standard wear and tear
  • Mechanical breakdowns and consequential damages
  • Compulsory deductibles
  • Private car when used for commercial purposes
  • Driver not carrying a valid driving license
  • Driver being under the influence of drugs or alcohol, etc.

Concluding Words

Choosing zero depreciation insurance policy for your car is worthwhile. You are however advised to read through the benefits & exclusions applicable and also assess the benefits against the cost, so you can ascertain whether you want to buy this add-on product.

Harjot Singh Narula

Harjot Narula is founder and CEO of ComparePolicy.com, an IRDAI approved insurance web aggregator focussed on selling online insurance for companies. Harjot has more than a decade of experience in software development and has also spent 5 years in US working for the mortgage and risk management industry.

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