Like all other machines, your car will also undergo some wear and tear with the passage of time. Standard policies deduct the wear and tear costs prior to making final settlements of the claim amount.
The zero-depreciation add-on car insurance is that cover that one can avail of on their comprehensive car insurance policy, which protects the insured from losing amounts at the time of claim settlement by virtue of the depreciation costs of the car.
What is the Zero-depreciation Cover?
Zero-depreciation or the ‘Nil depreciation policy’ is an add-on that permits the policyholder to car insurance claim the complete expenditure incurred at the time of repair of one’s damaged car. It guarantees that the wear and tear costs of the car are not deducted by the insurer from the final claim settlement amount.
What is the Difference Between an Insurance Policy with Zero-depreciation Cover and Without It?
| Basis | Zero-depreciation cover | Normal cover |
|---|---|---|
| Claim settlement | Full compensation will be provided to the insured in case of a zero depreciation cover. | The claim amount is received after the standard deduction of depreciation. |
| Premium | The premium amount will be an additional 20% – 30% approximately in comparison to a normal insurance cover. | The premium paid will be of a lesser amount. |
| Repairing costs | The repairing costs of fibre, glass, rubber, and plastic parts are borne by the insurer in case of zero depreciation cover. | The repairing costs have to be borne by the insured. |
| Age of the car | Meant for new cars less than 5 years old. | Meant for all cars that are older than 5 years old. |
| Limit on the number of claims in the term | Usually, a cap of 2 is placed for making claims. | No such limit exists. |
| Example | Parul's car got damaged and when she approached her insurance company for the claim, she received the full claim amount equal to the damaging cost of the car. All thanks to the zero-depreciation cover, the insurance company did not deduct any depreciation value of the car hence a full claim amount was received by Parul. | Praney's car also got damaged in an accident and on approaching his insurance company, he came to know that he would not be receiving the full compensation from the insurance company for his damaged car. The reason being, he did not opt for a depreciation cover hence the company deducted the depreciation value of the car from the final claim settlement amount. Hence, less compensation was received by Praney. |
What are the Benefits of Buying a Zero-depreciation Cover for a New Car?
The advantages of opting in for a zero-depreciation cover are as follows –
- Full compensation for the damage suffered at the time of final settlement.
- Some insurance companies offer coverage for key replacements, roadside assistance, towing assistance, regular maintenance, etc.
- Enhances coverage and secures the automobile more holistically.
- Full compensation for the damage suffered at the time of final settlement.
- The add-on comes at an affordable price.
Factors to Consider Before Buying a Zero-depreciation Cover
The following factors must be kept in mind while purchasing a zero-depreciation cover –
- The cover is available only for up to a period of 5 years.
- It does not cover the car in case of total loss such as theft.
- There is a cap on the number of claims that can be filed in a year.
- The premium amount is higher than other car insurance policies. The premium amount will be an additional 20% – 30% approx.
- It should not be the cause of careless driving. Research has shown that a zero depreciation cover promotes careless driving as drivers will be less cautious in the presence of this extra protection.
How is the Rate of Depreciation Calculated?
The Insurance Regulatory and Development Authority of India (IRDAI) has assigned rates of depreciation for different parts of the car that the insurance company will use while calculating the final claim settlement. The rates are as follows -
| 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 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% |
What is not Covered Under Zero Depreciation Cover?
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.
Other exclusions under this cover are 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.
How is the Premium Affected by Buying Zero-depreciation Cover?
A higher premium amount is to be paid by the policyholder for buying zero dep car insurance. The amount is usually 20% – 30% higher than a no-frills comprehensive cover.
Who Should Ideally Buy the Zero-depreciation Cover?
It would not be incorrect to state that it would provide the maximum benefit to all those individuals –
- For those who own a luxury car.
- For those who have cars with expensive spare parts.
- For those who drive their cars in accident-prone areas.
- For those who are new/ inexperienced drivers, as opposed to others.
- It is preferred by owners who are fastidious even about small dents on their cars.
- Car owners who hire drivers to use the car regularly.
Conclusion
A zero-depreciation cover offers holistic coverage and protection of the policyholder’s hard-earned money at a nominal increased premium amount. Do not be misled by the popular misconception that it refers to zero expenses; it is actually the non-deduction of the wear and tear costs of the car during claim settlement.
