What is Zero Depreciation in Car Insurance?
Car insurance is essential for a car owner to save on the huge expenses that may occur in case of accidents. Car insurance makes the insurance company bear the losses for the car and its parts damage and even damage done by the car to third parties.
Since it is important to choose a more cost-effective insurance policy, the concept of zero depreciation car insurance is worth exploring. It saves you more during car damage or accidents against a slightly higher premium price.
Definition of Depreciation?
Depreciation is the lowering of the value of a product due to its continuous usage and damage due to wear and tear. The value of a car starts reducing from the moment it is taken out of the showroom.
The concept of depreciation applies to almost all sorts of products. During settlement, the percentage of the depreciation is deducted from the settlement amount, and owners need to bear it from their pocket.
What is the Meaning of Zero Depreciation Car Insurance?
Many people often confuse what is zero depreciation in car insurance, and how depreciation is relatable in insurance.
Zero depreciation car insurance means that the insurer will not apply depreciation rates, the value of the car during the insurance policy is fixed, and settlement in case of accidents will be done from the same amount. The owner of the car need not pay from their pocket.
It can be understood that the insurer will use the same value of the car as at the start of the policy to calculate settlement, and no depreciation will be deducted, and thus you can claim the full repair amount.
What is the Difference Between a Comprehensive Policy and a Zero Depreciation Policy?
There are various core differences between a comprehensive policy and a zero depreciation policy. Let’s explore them -
Criteria |
Zero Depreciation Policy |
Comprehensive Policy |
Depreciation Rate |
Normal depreciation rates are applicable |
No depreciation rates are applicable |
Premium |
has high premium |
premium is lower |
Validity |
Not valid after 5 years |
Can avail anytime |
Type |
Zero depreciation is in service to the comprehensive policy |
It is an insurance policy |
Option |
Zero Depreciation is optional |
It is mandatory by traffic laws |
Claim Amount |
Covers total damage |
Depreciation is deducted from the claim amount. |
The difference between both insurance policies can be further understood with the following examples -
Tenure |
% Depreciation for Comprehensive Policy |
% Deprecation for Zero Depreciation policy |
Till 6 months |
0% |
NIL |
6M-1Y |
5% |
NIL |
1Y-5Y |
10%-39% |
NIL |
5Y-10Y |
40% |
NIL |
More than 10 years |
50% |
NIL |
What is the Depreciation Rate Applicable for Vehicles?
The Insurance Regulatory Development Authority of India (IRDAI) has set some standard depreciation rates that insurers need to follow in India. The depreciation rates applicable in comprehensive policy are based on this.
The rates set by IRDA are shown in the below table -
Part based Depreciation |
% Depreciation Applicable |
Plastic parts, batteries, tires, rubber, tubes and nylon. |
50% |
Fiberglass components |
30% |
Glass parts |
NIL |
Wooden parts |
5% (1st year), 10% (2nd year) |
Depreciation is calculated at different rates for different parts of the car as shown above. It can be understood with an example.
Illustration
Jacob met with an accident in his car, and the fiberglass mirror broke. Jacob went to the insurance company, as luckily he had purchased a comprehensive car insurance policy. The cost of the fiberglass mirror is Rs. 10,000. During settlement, the insurance company paid Jacob with just Rs. 7,000.
The remaining amount of Rs. 3,000 is deducted from the comprehensive insurance policy via a 30% depreciation rate on fiberglass parts. If Jacob had purchased the add-on zero depreciation insurance policy, then the whole cost of Rs. 10,000 would be borne by the insurance company.
Factors Affecting the Purchase of Zero Depreciation Policy
The following factors must be considered before purchasing a zero depreciation policy :
-
Up to 5 years
A zero depreciation policy is applicable on cars up to 5 years old, thereafter one cannot purchase a Zero depreciation policy.
-
High premium
Insurance policy with Zero depreciation as add-ons have more premium to pay. The premium could be 15%-20% higher than the normal policy.
-
Limited claims
You cannot claim multiple times with a zero depreciation policy, with different companies, the number of claims differs.
Conclusion
Save your cost in the long run by making a smart move to a zero depreciation add-on policy. With a little raise in premium, you can save on those heavy repair costs.
It prevents the depreciation value of the car from falling, and your settlement is calculated from its original amount, and thus you get the full amount of repair settled. Zero depreciation is not valid on cars about 5 years old.
What is Zero Depreciation in Car Insurance - Related FAQs
Zero depreciation is the process of calculating the settlement amount from its real value at the time of policy creation or renewal and does not deduct any depreciation amount.
Maximum 2 claims are possible with zero depreciation policy in a given policy year.
Depreciation shows the lower value of a product over time due to its usage and damaged parts. For car insurance, this lowered amount is deducted by the insurance company from the settlement.
In zero DEP, the damage or repair amount of the car is paid in full to the garage by the insurance provider irrespective of car value. Like it does in the case of a normal or comprehensive car insurance policy.
Standard car insurance does not cover Zero depreciation. It is an add-on feature, and you need to opt for it to have it. You also need to pay more premium for such add-on services.
Zero depreciation saves your funds in case of accidents with your car. It ensures that you receive the whole repair cost and not just the part of it.
No, Zero Dep can only be availed for 5 years, cars older than 5 years are not eligible to avail of Zero Dep.
If your car ages above 5 years, zero dep is not available for it. The damages that result from wear and tear or mechanical breakdown are not covered under this. Damages that occur due to accidents from alcohol are not included as well. If the vehicle is used for purposes other than intended is not covered under Zero Dep.