Car Insurance 297 views April 2, 2021

Depreciation is a process by which the value of an asset decreases over time. Like other physical assets, cars and their parts also depreciate over time. The depreciation of cars impacts your car insurance claim amount. Car insurers deduct the depreciation cost before giving you the final claim amount in case of an accident. However, with Zero Depreciation Car Insurance, you can get comprehensive cover with no effect of depreciation.

Upon choosing the Zero Depreciation add-on, your car insurer will not subtract any depreciation (of the car and its parts excluding tires and batteries) from the coverage amount. Also known as Nil Depreciation or Bumper to Bumper Car Insurance, Zero Depreciation Car Insurance is ideally suited for the following individuals.

  1. New Car owners
  2. Individuals who have luxury cars with expensive parts
  3. Individuals living in accident-prone areas
  4. New Car Drivers who aren’t confident of their driving skills
  5. Regular Car users conscious of small bumps and dents

In this article, we’ll talk about several other aspects related to Zero Depreciation Car Insurance too. So, let’s start!

Let’s Start with the Calculation of Depreciation

Most people don’t know about the calculation of depreciation for their cars. The Insurance Regulatory and Development Authority of India (IRDAI) has fixed the depreciation rates according to which the insurers calculate the total depreciation of your car. You can check the same in the below table.

Part of CarRate without Zero Depreciation Car Insurance
Paintwork/ Rubber/ Nylon/ Plastic Parts/ Batteries50%
Fiberglass Components30%
Wooden Parts5% in the first year, 10% in the second year, and so on

Other than this, you should also understand the percentage of depreciation for vehicles of different ages. Refer to the below table to know the same.

Age of Vehicle% of Depreciation
Below 6 months5%
More than 6 months but less than 1 year15%
More than 1 year but less than 2 years20%
More than 2 years but less than 3 years30%
More than 3 years but less than 4 years40%
More than 4 years but less than 5 years50%

Impact of Zero Depreciation Car Insurance on Claims

The impact of Nil Depreciation Car Insurance can be best understood with an example. Let’s say your car meets an accident for which the cost of repair is 25,000. The overall depreciation value of different parts at that time is INR 8,250. With the Bumper to Bumper Car Insurance, you will get the total claim amount of INR 25,000. However, without this add-on, you will get only INR 16,750 (25,000 – 8,250) as the claim amount after a deduction of the depreciation cost.

So, you can get a higher claim amount with the Nil Depreciation Car Insurance as compared to a basic car insurance plan. Since you don’t need to pay the depreciation cost from the overall claim amount by yourself, you can ensure maximum savings on your car insurance plan.

What is the Cost of Zero Depreciation Car Insurance?

Since Zero Depreciation Car Insurance provides a higher claim amount, you will need to pay a higher premium amount. The cost of this add-on is generally higher by 15% of your comprehensive car insurance plan and may vary from one insurer to another. This additional 15% premium amount can prove beneficial in the long run as you will save while getting the claim amount from the insurer.

The premium amount of your Nil Depreciation Car Insurance also depends on three factors — Age and model of your car, and the city where you drive it. Car insurers assess based on these factors before deciding the final premium amount.

Important Things to Remember Regarding Zero Depreciation Car Insurance

Keep in mind the following things when going for Nil Depreciation Car Insurance –

  1. You must have a valid driving license while driving your car to enjoy the benefits of Zero Depreciation Car Insurance.
  2. If you want to choose Zero Depreciation, the age of your car should be less than 5 years.
  3. An individual driving under the influence of alcohol or drugs cannot get the benefits of Zero Depreciation add-on while filing the claim.
  4. Zero Depreciation also doesn’t cover mechanical breakdowns or regular wear and tear in your car. Other than this, you will not also get any claim for costs of engine oil, clutch oil, coolant, etc.
  5. Insurers often put a limit on the number of times you can claim Nil Depreciation within a policy year.
  6. This add-on also does not deduct any compulsory deductibles (if any) included in your comprehensive car insurance plan.

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