Amit purchased a car worth INR 7.5 lakhs to celebrate his five years as a sales manager in a reputed firm. He meets with an unfortunate accident a few months after the purchase and the repair costs run up to INR 30,000.
However, the depreciation of the car parts is INR 7,000, and the insurer has agreed to pay INR 23,000 to settle the claim after deducting the depreciation amount. Thus, the balance of INR 7,000 has to be paid by Amit himself.
If we were to consider a scenario of Amit having bought the car insurance along with the zero-depreciation add-on by paying a slightly higher premium, then he could have claimed the entire repair bill of INR 30,000 and had to pay nothing out of his own pocket. It acts as a shield against depreciation deductions by the insurer.
What is Zero Depreciation in Car Insurance?
- An insurance add-on that is provided for under a comprehensive car insurance policy, a zero depreciation or a nil depreciation cover, is an excellent way by which the insured can protect his or her hard-earned money by getting a higher amount at the time of claim. The insurer will not deduct any amount as wear and tear costs while processing the insurance claim and pay the insured in full.
- This Zero Depreciation cover provides a 100% coverage of all plastic, fibre and metal parts without considering the depreciation of these parts, while it does not cover the replacement of tyres and tubes during the total loss of the vehicle.
- One can buy this cover online while purchasing or renewing car insurance. However, this add-on does not cover cars that are more than 5 years old.
- Please note: this add-on does not cover the cost of compulsory deductibles.
How is Depreciation Calculated?
The IRDA has assigned rates of depreciation for different parts which will be duly applied by the insured while calculating the final claim settlement.
| Parts | Percentage deducted as depreciation |
|---|---|
| Wooden and metallic parts | 1st year – 5% 2nd year – 10% and so on |
| Fiberglass components | 30% |
| Plastic, nylon and rubber parts | 50% |
Additionally, the depreciation factor of the car based on the age of the car, as outlined by the IRDAI–
| Age of the vehicle | Percentage of depreciation for fixing IDV |
|---|---|
| ≤ 6 months | 5% |
| 6 months – 1 year | 15% |
| 1 year – 2 year | 20% |
| 2 year – 3 year | 30% |
| 3 year – 4 year | 40% |
| 4 year – 5 year | 50% |
What are the Benefits of Zero Depreciation Cover During Claim?
The main advantages that one can derive by opting in for a zero depreciation cover are as follows –
- Increase in the payable amount: The amount that one loses out by virtue of the depreciation costs is quite significant – it can go up to nearly half the cost for certain parts of the vehicle. Therefore, in order to ensure that you do not lose out on such amounts, the zero depreciation cover must be opted in for.
- Protects your investment: Without Nil Depreciation add-on, one will end up paying the unpaid portion of the claim. If in case, the damage to the car is considerable, then the repair bill will be higher and burn a large hole in one’s pocket. Therefore, it is beneficial to opt-in for the same.
- The add-on is quite affordable to buy: The car insurance companies offer this add-on at reasonable premiums. The premium for the zero depreciation add-on is usually between 15% to 20% and is based on the age and model of the car, and the location of the vehicle. One may use the help of various websites to compare and contrast the premium rates offered by different insurers, and also know if the premium rates for a zero depreciation cover will drastically increase the premium of a comprehensive cover or not.
