Zero depreciation car insurance
Most people only buy third-party car insurance online since it is mandated by the Motor Vehicles Act of India, 1988. While this saves money on penalties, it may not provide full coverage for damages to your vehicle in case of an accident. Comprehensive car insurance, on the other hand, covers both third-party liabilities and damages to your vehicle. To get the most out of your car insurance policy, consider adding zero depreciation insurance to your policy.
Read on to learn more about what zero depreciation car insurance means and why you should consider adding it to your car insurance.
What is zero depreciation car insurance?
Zero depreciation cover, often called bumper-to-bumper or nil depreciation cover, is an optional add-on for comprehensive or standalone own-damage (OD) car insurance policies. It is designed to protect you from the financial burden of depreciation when your car is damaged in an accident.
In normal circumstances, when you file an insurance claim, the insurance company deducts depreciation on car parts before settling the claim. This means that you receive a reduced amount compared to the actual cost of repairs or replacement. However, with zero dep car insurance, you receive the total cost of replacing damaged car parts without any deductions for depreciation.
In other words, zero depreciation cover means you get the maximum possible reimbursement in case of an accident. With nil dep insurance, you can ensure that your car is restored to its original condition without out-of-pocket expenses.
What is depreciation?
Before exploring the meaning of zero depreciation cover further, it’s important to understand what depreciation is and why it is charged.
When a car leaves the dealership, its value immediately loses 5% of its showroom price, and its worth continues to decline. This ongoing decrease in market value is known as depreciation. Like any product, your vehicle wears and tears with use, gradually decreasing its worth. Factors like age, mileage, use, technological advancements, and market trends influence this reduction.
Depreciation is primarily linked to the materials used to build the car, such as metal, plastic, glass, and fibre. Each material depreciates at a different rate. Therefore, calculating the depreciation on a vehicle means estimating the drop in value of these components. Even the best comprehensive car insurance policy does not protect your vehicle against depreciation. However, a zero depreciation policy does.
Depreciation also plays a role in car insurance claims. Insurance companies use a set of rules defined by the Insurance Regulatory and Development Authority of India (IRDAI) to determine how much value a car part loses each year. For instance, rubber parts depreciate very quickly while glass doesn’t experience any depreciation.
Who should opt for zero depreciation car insurance?
Zero dep insurance means car owners can enjoy peace of mind, knowing it protects them from the full cost of repairs in unfortunate incidents. This cover particularly benefits:
- New Car Owners
Given the high cost of replacing new car parts, zero dep car insurance can mitigate financial burdens in accidents.
- Luxury and High-Performance Car Owners
Due to the expensive nature of luxury vehicles and their components, zero dep car insurance coverage is essential to safeguard against substantial repair costs.
- Drivers in Accident-Prone Areas
zero dep car insurance offers added protection for individuals residing in regions with high accident risks.
- New Drivers
As inexperienced drivers are more likely to be involved in accidents, zero dep car insurance coverage can provide essential financial security.
Benefits of zero depreciation car insurance
Zero dep policy offers the following advantages to policyholders in case of accidents or damages:
- Full Coverage for Car Parts
One of the most significant benefits of zero depreciation car insurance is that it covers the entire cost of repairing or replacing damaged car parts without deducting depreciation.
- Reduced Out-of-Pocket Expenses
With zero dep cover, you won’t have to bear any out-of-pocket expenses for replacing expensive parts like airbags, steering wheels, tyres, etc. It helps minimise your financial burden and prevent unexpected expenses.
- Higher Claim Amounts
Zero depreciation car insurance means you can claim the total value of damaged parts, resulting in larger reimbursements than standard policies.
- Easier Claim Settlement
With car insurance nil depreciation, the claim settlement process becomes smoother, as there are no disputes or deductions related to depreciation. It saves you time and effort.
- Affordable Additional Protection
Nil dep insurance is usually available at a reasonable additional cost. Considering its substantial benefits, the zero dep car insurance price can be a worthwhile investment for many car owners, especially those driving new or high-value vehicles.
- Peace of Mind
Knowing that your car is fully protected against depreciation with a zero depreciation policy can provide significant peace of mind while driving. You can focus on getting your vehicle back on the road without worrying about the financial implications.
- Suitable for New Cars
While zero dep insurance is available for older cars, it is particularly beneficial for new vehicles as they experience higher depreciation rates in the initial years.
How does zero depreciation in car insurance work?
Zero depreciation insurance reduces your out-of-pocket expenses in the event of a claim after an accident. Unlike standard or third-party car insurance online, which reduces the claim amount based on the age of your car, zero depreciation cover maintains the value of your vehicle at 100% for claim purposes. To illustrate the difference, consider the following scenarios:
Scenario 1: Without zero dep car insurance Suppose your car’s bumper is damaged, and the repair cost is ₹10,000. In such a case, your insurance company will deduct a standard deductible of ₹1,000 and a depreciation value of 50% for the bumper (since plastic parts depreciate quickly). As a result, you will only receive a claim amount of ₹4,000 while having to pay the remaining ₹6,000 of the repair cost yourself.
Scenario 2: With zero dep car insurance In the same scenario, with nil depreciation cover, you would receive a higher claim amount of ₹9,000. While you would still be responsible for the deductible of ₹1,000, the depreciation value for the bumper would not be applied. This means you would pay less out of your pocket for the repairs, i.e., only ₹1,000. Zero depreciation car insurance renewal typically covers all car parts except for exclusions (such as tyres or car battery) specified in the policy. While there are no specific IRDAI guidelines for zero depreciation, zero dep insurance after 5 years is not applicable.
Depreciation Rates in Car Insurance
The value of a car decreases over time at different rates, depending on its parts and age. The IRDAI (Insurance Regulatory and Development Authority of India) has established standard car depreciation rates to simplify this process for insurance companies and car owners.
How is depreciation calculated in car insurance?
You can estimate your car’s depreciation for car insurance using IDV calculators available online. These tools utilise vehicle specifics like make, model, registration details, and more to approximate the car’s current value.
However, depreciation can also be calculated manually using specific formulas.
- Prime Cost Technique
This method links depreciation to a fixed percentage of the car’s total cost. The formula is as follows:
Depreciation = (Cost of running the car X (Number of days owned / 365)) X (100 / Effective life in years)
- Diminishing Value Technique
This approach calculates depreciation based on the car’s original purchase price. The formula is:
Depreciation = (Purchase value of the car X (Number of days owned / 365)) X (Effective life in years / 200)
Rate of depreciation for all parts as approved by IRDAI
The IRDAI has established standardised depreciation rates for various car parts to ensure uniformity across the insurance industry. Car parts have different depreciation rates based on material, durability, and expected lifespan. The depreciation rate also varies based on the age of the car. Older vehicles have higher depreciation rates.
Here is a general overview of depreciation rates for standard car components with and without zero depreciation car insurance:
Car Parts
|
Rate of Depreciation
(Without Zero Dep Cover)
|
Rate of Depreciation
(With Zero Dep Cover)
|
Rubber/Plastic/Nylon/Batteries
|
50%
|
0%
|
Fibre Parts
|
30%
|
0%
|
Wooden Parts
|
5% in the first year,
10% in the second year,
and so on
|
0%
|
Glass
|
0%
|
0%
|
Rate of depreciation in vehicles
A vehicle’s value decreases gradually over time. Age, mileage, model, and market conditions affect the amount. Factors like accidents, poor maintenance, technological advancements, and economic downturns can also accelerate depreciation.
Insurance policies consider depreciation when calculating claim settlements. Different parts of a vehicle depreciate at varying rates. For instance, electronic components depreciate faster than the chassis. This concept is fundamental in determining the compensation for a damaged car.
Generally, new vehicles depreciate rapidly in the first few years, then at a slower pace. The rate of depreciation in vehicles as per IRDAI guidelines is:
Age of Car
|
Rate of Depreciation
(Without Zero Dep Car Insurance)
|
Rate of Depreciation
(With Zero Dep Car Insurance)
|
Less Than 6 Months
|
5%
|
0%
|
6 Months to 1 Year
|
15%
|
0%
|
1 Year to 2 Years
|
20%
|
0%
|
2 Years to 3 Years
|
30%
|
0%
|
3 Years to 4 Years
|
40%
|
0%
|
4 Years to 5 Years
|
50%
|
0%
|
More Than 5 Years
|
Agreed upon by both the insurance company and the policyholder
|
Zero dep insurance after 5 years is usually not available
|
Rate of depreciation in vehicles: Metallic parts
Metallic parts in a vehicle, such as the engine, chassis, and body panels, depreciate slower than other components. These parts are durable and can better withstand wear and tear. However, corrosion, accidents, and heavy usage can accelerate their depreciation.
The rate of depreciation for metallic parts is as follows:
Age of Car
|
Rate of Depreciation
(Without Zero Dep Car Insurance)
|
Rate of Depreciation
(With Zero Dep Car Insurance)
|
Less Than 6 Months
|
0%
|
0%
|
6 Months to 1 Year
|
5%
|
0%
|
1 Year to 2 Years
|
10%
|
0%
|
2 Years to 3 Years
|
15%
|
0%
|
3 Years to 4 Years
|
25%
|
0%
|
4 Years to 5 Years
|
35%
|
0%
|
Exceeding 5 years but not exceeding 10 years
|
40%
|
0%
|
More Than 10 Years
|
50%
|
0%
|
What is covered under Generali Central zero depreciation car insurance?
Generali Central offers zero depreciation cover as a valuable add-on to your car insurance policy. With this cover, you can claim the total cost of replacement parts without any deduction for depreciation in case of an accident.
Inclusions
Zero depreciation policy by Generali Central provides protection against:
- Natural and Man-Made Disasters: This includes damage caused by natural disasters such as landslides, earthquakes, and floods. Additionally, it covers situations where your car is vandalised during riots or suffers damage resulting from a terrorist attack.
- Accidental Damage: This provides comprehensive coverage if your car sustains damage in an accident, regardless of who’s at fault.
- Transit Damage: The zero depreciation add-on safeguards your vehicle during transportation from one location to another, covering any damage incurred in transit.
Exclusions
Zero depreciation policy will not be applicable in the following situations:
- Driving the vehicle without a valid driver’s license.
- Driving the car while under the influence of intoxicating substances.
- Damage resulting from regular wear and tear or internal mechanical malfunctions.
- Covering the costs of consumables such as nuts, bolts, engine oil, coolant, or clutch oil.
- When the repair cost equals or exceeds the insured declared value (IDV) of the vehicle.
- If you have filed more than two claims under this add-on coverage within a year.
- When your car is six years old or older.
- Cost of compulsory deductibles.
Go through the policy document carefully to understand the specific inclusions and exclusions. Additionally, factors like the age of your car, the type of policy, and the insurer’s terms and conditions can influence the coverage. For instance, car insurance renewal online zero depreciation is not available after 5 years.
Zero depreciation car insurance vs comprehensive coverage
Here are the key differences between zero depreciation car insurance and comprehensive coverage:
Feature
|
Zero Dep Car Insurance
|
Comprehensive Coverage
|
Definition
|
This is an add-on to comprehensive insurance that covers the full cost of car repairs or replacements without deducting depreciation.
|
This covers damages to your car caused by accidents, theft, natural calamities, vandalism, and other unforeseen events.
|
Coverage
|
Zero dep car insurance covers the entire cost of replacing damaged parts without considering depreciation.
|
A comprehensive policy covers the cost of repairs or replacements, but depreciation is deducted from the claim amount.
|
Premium
|
Zero dep car insurance price increases the premium of your comprehensive insurance due to the additional coverage.
|
Comprehensive policies have lower premiums without zero depreciation add-on as they offer less coverage.
|
Suitability
|
Ideal for new car owners who want complete financial protection.
|
Suitable for older cars or those with a limited budget.
|
Claim Settlement
|
Higher claim amount as no depreciation is deducted.
|
Lower claim amount due to depreciation deductions.
|
Additional Features
|
Often includes coverage for tyres, tubes, batteries, and other parts.
|
May consist of additional covers like personal accident cover, third-party liability, etc.
|
Key Benefits
|
Confidence of total car coverage
|
Cost-effective option for older cars
|
Limitations
|
Higher premiums, which may not be cost-effective for older cars
|
Lower claim amount due to depreciation
|
In simpler words, adding a zero dep insurance means that your comprehensive car insurance policy provides substantial coverage at a marginally higher premium.
