A zero-depreciation cover protects the hard-earned money of the insured at a very reasonable price for it guarantees full compensation for the damages suffered by the policyholder at the time of final settlement of the insurance claim without any deductions for depreciation.
Zero depreciation cover, contrary to popular misconception, does not refer to zero expenses but to non-deduction of the wear and tear costs of the car during claim settlement.
What is a Zero-depreciation Cover?
Zero depreciation or the ‘Nil depreciation policy’ is an add-on that permits the policyholder to claim the complete expenditure incurred and receive it too, while replacing the impaired parts of one’s car.
It usually provides for the cost of repairs for damages caused to the fibre, metal, and rubber parts of the car. This add-on guarantees that the wear and tear costs of the car are not deducted by the insurance company from the final car insurance claim settlement amount.
The Insurance Regulatory and Development Authority of India (IRDAI) has assigned rates of depreciation for different parts of the car which will be duly applied by the policyholder while calculating the final claim settlement. This is applicable to comprehensive car insurance policies.
The rates are outlined below for your perusal -
| Automobile 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% |
The above figures illustrate that nearly 50% of your claim amount can be saved at the time of final settlement of claims if a zero depreciation add-on is opted in for.
Additionally, the depreciation factor of the car is based on the age of the car, as outlined by the IRDAI–
| Age of the vehicle | Percentage of depreciation for fixing Insured Declared Value |
|---|---|
| ≤ 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% |
Experts recommend that the following kind of car owners must consider purchasing this kind of policy cover or add-on –
- Individuals who are inexperienced drivers (as the probability of them meeting with an accident is significantly greater);
- Individuals residing in the accident-prone, high-risk locality or those who are frequent in such places;
- Individuals who have newly purchased the car;
- Individuals who are fussy about small scratches on their precious cars;
- Individuals who own high maintenance, luxury cars or cars which come with expensive spare parts.
Shortcomings of a Zero-depreciation Cover
- The premium amount is higher than other car insurance policies. The premium amount will be an additional 20% – 30% approx.
- There is a cap on the number of claims that can be filed in a year.
- Covers only up to a period of 5 years, i.e. cars which are 5 years old only.
- Promotes careless driving as drivers will be less cautious in the presence of this extra protection.
- It does not cover the car in case of total loss such as theft.
What are the Exclusions of this Add-on?
The exclusion specific to this add-on (which is usually the same as purchasing a bumper-to-bumper car insurance policy), is as follows -
- Engine damages caused due to fuel or water ingression;
- Batteries and tyres;
- Gas kits, bi-fuel kit, consumables, and mechanical breakdown of the car;
- Vehicles that are more than 5 years old.
Other standard exclusionary clauses are –
- Damage to uninsured peril;
- Delay in claim intimation;
- Damages caused when the car has been driven under the influence of alcohol;
- Damages caused when the car has been driven in the absence of a valid driver’s license;
- Damages caused are not a direct consequence of the accident;
- If the insurer is of the belief that the information provided in the application was inaccurate, false, or fraudulent.
Compulsory Deductibles is a Must-pay by the Policyholder at the Time of Claim
Deductibles are provided for in policies to lower the incidence of claims, for instance, compulsory deductibles may discourage policyholders from raising small claims and may even nudge policyholders to acquire and practice a cautious driving habit.
Compulsory deductibles are fixed by the insurers and in the event of a claim, the amount needs to be compulsorily paid by the insurer. This does not affect the premium rate in any circumstance. One cannot do away with the payment of this, unlike a voluntary deductible.
It is absolutely crucial that you must consider the age of the car, the premium amount charged by the insurer, the limit on the number of claims that can be made during the policy period, and compulsory deductibles as demanded by the insurance company before purchasing such a policy.
Conclusion
Getting a zero-depreciation cover provides a host of benefits such as holistic coverage, protection of the policyholder’s hard-earned money, and a nominal increase in premium amount.
But it is essential to understand the pros and cons of the add-on properly before adding it to one’s insurance cover to avoid disappointments in the future.
