Motor insurance for your car is a kind of financial protection in the event of an emergency. There are three main types of car insurance available - Third Party Liability (TPL), Standalone Own Damage (OD) policy, and Comprehensive Cover. According to the Motor Vehicles Act,1988, it is mandatory for every car owner to have Third Party Liability motor insurance. But due to its limited coverage, most owners opt for Comprehensive Cover which provides the benefits of both Third Party Liability as well as Own Damage.
Besides these, you can also choose from a number of Add-ons Covers. Although they are not mandatory, Add-on covers improve financial protection for your car. Zero depreciation is the most common add-on cover and is recommended for all car owners along with a Comprehensive Cover.
Let’s understand the Comprehensive Cover and Zero Depreciation Add-on in detail-
Comprehensive Insurance Cover
Comprehensive Insurance Cover provides all-around coverage for all types of motor vehicles. Just like the name, it guarantees complete financial safety in case of any damage or even theft. Apart from Own Damages, it can also be used in case of accidents causing third-party liabilities.
Simply put, Comprehensive Insurance compensates for the following:
- Partial or Complete damage to your car due to an accident
- Damage to the vehicle or property of the third party due to an accident
- Injury to the policyholder during an accident
- Injury to a third party (person) during an accident
- Car Theft
- Partial or Complete damage to your car in case of fire
- Partial or Complete damage to your car in case of natural disasters
Zero Depreciation Cover
Zero depreciation cover is not an insurance plan but an Add-on cover. It is better known as a nil depreciation cover or bumper to bumper cover. Wear and tear of your car over time will lead to a decrease in its value, this is known as Depreciation.
Usually, in the case of claims, the insurer takes into consideration the depreciation of the insured car. This results in a mismatch between the actual claim amount and the compensated amount. Choosing a Zero Depreciation Add-on Cover guarantees that the claim amount will be received in full without any depreciation.
To understand the effect of Zero Depreciation Add-on, let’s first understand the depreciation rates -
Depreciation Rates With and Without Zero Depreciation Cover
| Age of Car (in years) | Rate of Depreciation without Zero Depreciation Cover (in %) | Rate of Depreciation with Zero Depreciation Cover (in %) |
|---|---|---|
| > 6 months | 0% | 0% |
| 6 months - 1 year | 5% | 0% |
| 1 year - 2 years | 10% | 0% |
| 2 years - 3 years | 15% | 0% |
| 3 years - 4 years | 25% | 0% |
| 4 years - 5 years | 35% | 0% |
| 5 years - 10 years | 40% | 0% |
| > 10 years | 50% | 0% |
Individual parts of your car have different depreciation values. This table summarizes the depreciation for such parts with and without Zero Depreciation Add-on Cover -
| Car Parts | Rate of Depreciation without Zero Depreciation Cover (in %) | Rate of Depreciation with Zero Depreciation Cover (in %) |
|---|---|---|
| Paintwork, Rubber, nylon, plastic parts, tires and tubes, batteries, and airbags. | 50% | 0% |
| Fibre-glass | 30% | 0% |
| Glass parts | 0% | 0% |
Let’s understand these numbers with an example:
Ankit Gupta got a brand new car worth INR 10,00,000. On his way to work one day, he meets with an accident. The tentative cost of damage to his car and its parts including the depreciation would be -
| Particulars | Cost of Damage (in INR) | Cost of Depreciation (in INR) | Cost of Damage with Zero Depreciation (in INR) |
|---|---|---|---|
| Metal Parts | 9,000 | 450 | 0.05 |
| Plastic Parts | 15,000 | 7,500 | 0.5 |
| Fibreglass Parts | 3,000 | 900 | 0.3 |
| Windscreen | 2,000 | 0 | 0 |
| Labor Cost | 4,000 | 0 | 0 |
| Total | 28,000 | 6,375 | 0.85 |
Difference between Comprehensive policy and Zero Depreciation Insurance policy
| Factors | Comprehensive Policy with Zero Depreciation cover | Comprehensive Policy without Zero depreciation cover |
|---|---|---|
| Premium Amount | More than a normal comprehensive policy. | Less than a policy with the Zero Depreciation add-on. |
| Claim Amount | Almost zero deductions. | Deductions based on the total depreciation of all parts that need repairing. |
| Repair Parts | No depreciation is considered. | Depreciation is considered on such parts. |
| Insured car age | Depreciation is zero. | Depreciation increased up to 50% with age. |
Should You Invest in Zero Depreciation Cover?
Buying a zero depreciation add-on cover is a smart investment. It will not only protect you from third-party liabilities but also save the extra money spent on depreciating parts. This means, in case of an accident you will have all-around protection. You will not have to compromise on the depreciation value for damaged parts at the time of claim settlement. Your claim amount will be higher and you will save more. Therefore, every car owner should opt for zero depreciation car insurance cover along with their Comprehensive Insurance Policy.
Suitable For:
- People with New/Luxury Cars
- New/Inexperienced Drivers
- People Living in Accident-prone Areas
- Cars with Expensive Spare Parts
Points to Remember:
- This cover is not available for cars more than 5 years old.
- Zero depreciation cover costs anywhere between 15%-20% of the basic premium.
- Only 2 claims in a policy tenure can be made under this cover.
- It offers 100% coverage for all fibre, rubber and metal parts without deduction of depreciation.
- Engine damage due to water ingression or oil leakage, any mechanical breakdown, oil change, or consumables are not covered in zero dep.
Summary:
Opting for a zero depreciation cover alongside a Comprehensive car insurance policy is the ideal way to gain complete financial security in times of emergency. Car owners will not only receive the benefits of Third Party and Own Damages but also save extra with zero depreciation-related expenses.
