All You Need to Know About Zero Depreciation Car Insurance

Zero depreciation car insurance is one of the seven major car insurance riders every car owner must know to comprehensively cover for any car damage

All You Need to Know About Zero Depreciation Car Insurance

After a car accident, it can be extremely frustrating to realise that your insurance covers only part of the expenses incurred to replace expensive damaged parts because the rest is eaten up by depreciation. To avoid such a situation, a zero depreciation car insurance cover can be a worthy addition to the available add-ons in a standard car insurance policy. 

Zero depreciation car insurance is a type of car insurance benefit that provides complete coverage for your car if it meets with an accident or if there is any damage. Zero depreciation car insurance does not factor in depreciation when reimbursing for the repairs. This means the insurer pays for the entire expenditure. So be sure to look out for the zero depreciation benefit when reading the car insurance terms and conditions.

How does zero depreciation insurance differ from a standard car insurance policy?

Car insurance covers losses one might incur if a car is damaged or stolen. But there’s a catch. When a car is damaged, you are not entitled to 100% reimbursement of the expense incurred on the parts replaced. Depreciation, or the normal wear and tear that car parts undergo, comes into the picture. As per norms, only the residual value, i.e. the remaining value of the part after deducting depreciation, will be paid for by the insurance company. Depreciation on your car and its parts are calculated on an annual basis. For example, if a replaced part costs Rs 5,000, but 50% is the applicable depreciation rate, then you will only get a pay-out for Rs 2,500 only.

On the other hand, zero depreciation cover ensures complete coverage without deducting depreciation costs. So even if your car gets damaged after a couple of years, your insurer will pay out the entire cost to renew the car to its original form.

What are the rates of depreciation?

Depreciation means loss in the value of an asset due to use. Different materials and parts of a car have different rates of depreciation assigned by the insurance policy. For a detailed understanding on how your insurer calculates depreciation, be sure to go through the car insurance terms and conditions.

The standard rates are:

  • 50% for parts which have high wear and tear like as plastic/rubber parts of the car, battery, tyres/tubes etc.
  • 30% for fibre glass parts
  • 0-50% for metallic parts, depending on the age of the vehicle

Related: Just bought a new car? Here’s what you need to do next!

What makes zero depreciation car insurance a good choice?

If you had a choice, wouldn’t you prefer to be compensated for the entire cost incurred on replacing damaged parts? High rates of depreciation will reduce the insurance claims, particularly for plastic parts that are prone to severe damage in case of an accident.

The zero depreciation cover allows you to do just that. You receive full claim without any deduction for the depreciation on the value of replaced parts.

What is the additional premium payable for a zero depreciation cover?

Premium paid for insurance depends on the Insured Declared Value (IDV) of the car, which is essentially the maximum amount you can claim in case of total loss or total constructive loss of your car, or in case it gets stolen or damaged beyond repair, within the policy period.

While car insurance premium generally depends on the car’s age, model and location, the additional premium for the zero depreciation cover could be up to 20% of a standard car insurance policy. This will again differ from insurer to another and the premium for a zero depreciation cover will be specified within the car insurance terms and conditions.

Does it make sense to pay a higher premium for this?

Zero depreciation insurance makes sense:

  1. If you have a new car – The minute your car comes out of the showroom, depreciation comes into play. So, if you damage your car the next day, you can only claim a fraction of the cost to replace plastic parts etc.
  2. If you have a high-end luxury car – Each spare part of a luxury car costs an arm and a leg. So, why not have the option of claiming the full value of a replaced part?
  3. If you are a new driver or are accident-prone – If you are a new driver or have a history of damaging your car, it helps to have a zero depreciation add-on cover.
  4. If you pass by/live in an area with a higher risk for car damage – Should you regularly take a route which has accident-prone spots or if you live in an area where car damage is not uncommon, it would give you peace of mind to know that your costs are covered.

Can I take zero depreciation insurance for any car?

This cover is generally allowed only for cars that are up to five years old.  

Related: Car insurance in India [Infographic]

What is not covered in zero depreciation? 

Accessories fitted in the car which are not part of the standard product are not covered. For instance, an externally fitted gas kit will not be covered, unless mentioned otherwise. Few insurance companies don’t cover tyres and batteries either. 

Damage due to wear and tear and mechanical breakdown are not covered. Each company’s policy wordings will give more specifics on this aspect. That is why you need to comb through the car insurance terms and conditions so that you are not left high and dry in the event of a claim.

What else should I know before I buy zero depreciation car insurance?

You need to know that there are limits to the number of claims you can make in a year. Generally, up to two claims are permitted.

How often do I have to renew the policy?

Normally, the tenure of a car insurance policy is one year and it has to be renewed annually. So the add-on too will be renewed along with the main policy.

Related: Common car insurance myths and misconceptions busted

Choose an insurance company that provides comprehensive coverage and clearly spells the benefit out within the car insurance terms and conditions. Now that you know all about zero depreciation car insurance, make an informed decision about this add-on and enjoy the benefits. 

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