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Car Insurance

Don't break your head. Here's all you need to know about vehicle depreciation

16 November 2016
Depreciation on the value of your car can be hard to understand. Let’s break it down.
 

Why buy car insurance? Any ordinary person will answer that having car insurance will mean the insurer pay for repair and replacement of all damaged parts when the policy holder files a valid claim. So, if the total damage is Rs. 50,000, then the policy will pay the amount and the car will be repaired at no cost, right? Wrong.

Your car is losing value constantly due to depreciation. This reduction of the value of your car due to usage, wear and tear, and unavoidable damage is called depreciation. When you file a claim, the insurer pays the value of the depreciated part. The price difference between the depreciated and new parts will be borne by you.

Age

Rate of Depreciation

New purchase to 6 months

5%

6 months – 1 year

15%

1 year – 2 years

20%

2 years – 3 years

30%

3 years – 4 years

40%

4 years – 5 years

50%

Why is depreciation such a big deal?

  1. Your claims will be adjusted for depreciation, which means it will not be paid in full.
  2. The insurer will determine the extent of depreciation. It can range from 0% for glass, which means the entire cost will be paid by insurer to as high as 50% for paint jobs, which means you will end up paying half the cost of repairing any damage to the car’s paintwork. 
  3. You cannot assess the financial implications of any claim until the insurer reverts with the approval details.

Related:All you need to know about zero depreciation car insurance

Avoiding the depreciation problem

If you wish to get rid of the depreciation conundrum, you can simply opt for a zero-depreciation policy. As the name suggests, the insurer won’t consider depreciation at all when assessing your claim. The claim will be finalized as if the part that was damaged was brand new. Obviously, you won’t face any claim-related shortfall under a zero-depreciation policy and just need to pay the compulsory deductible as per the terms of the insurance contract.

Who should opt for such a policy?

  1. You have a new vehicle purchased less than five years ago. Since cost of spares of new cars can be very high, a zero depreciation policy will protect your purse in the unfortunate event of a claim on our new car.
  2. You have a very expensive car like an imported or luxury car where the cost of repair or replacement will be significantly higher than a normal vehicle.
  3. You can afford to pay the higher premium. A zero-depreciation policy will come with a higher price tag as compared to a standard policy. Again, the car’s value and condition must justify this investment.
  4. You don’t plan on filing more than 1-2 claims in a year. To discourage policy holders from filing frivolous claims, insurers don’t allow more than 1-2 claims per year on zero-depreciation plans. Any damage beyond the permitted claims will have to be paid for out of your pocket.

Related:Checklist for buying/selling a second hand car

The good thing about zero depreciation cover is that it can be added to a standard policy as a rider. This means you can continue enjoying the benefits and features of your existing plan along with the added benefit of reimbursement of claims on basis of the actual replacement value and not the depreciated value of the parts.

 
 
 
 
 

"An investment in knowledge pays the best interest"

- Benjamin Franklin -

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