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Zero Depreciation Car Insurance

As an asset ages over time, it undergoes normal wear and tear, and obsolescence. Its value depreciates or reduces. A vehicle, in general, is a depreciating asset. At the same time, the different parts used in the car such as glass, plastic, metal, etc. also undergo depreciation.

In case your vehicle meets with an accident, the general insurance company will only pay for the replaced parts after deducting the depreciation amount. You, the insured person, will have to pay for the difference between the ongoing market rate of the new part and the depreciated part. 

If you opt for a zero depreciation car insurance policy, you can get the entire compensation amount as the depreciation factor will not be considered at the time of settlement, saving you a considerable amount of money.

What Do You Need To Know About Bumper To Bumper Insurance?

Bumper-to-bumper insurance bridges the gap between the actual damage and the claim settlement amount. In this case, if there is loss or damage as a result of an accident, the insurer will not factor in the depreciation value from the coverage. You will be paid the entire cost of the replacement of the vehicle’s body parts.

This cost, however, does not cover normal wear and tear and mechanical or electrical breakdown of your car. It covers only the expenses incurred due to damage to car paint, rubber parts, batteries, tires, and plastic parts. What you must bear in mind is that a claim against this add-on can be filed only twice in a policy period. It guards you against unforeseen expenses and ensures you enjoy peace of mind.

Zero Depreciation Cover Vs Comprehensive Coverage

Here is the difference between a zero-depreciation car insurance cover and a comprehensive car insurance cover:

FeaturesZero depreciation coverComprehensive cover
Premium paidHigher than a comprehensive-only policyLower than a policy with add-ons
Claimed amountCovers the total loss without factoring in depreciationArrives at an amount after calculating depreciation
Car age eligibilityUp to 5 yearsUp to 15 years
You payThe policyholder will pay much less at the time of the claim.The policyholder will have to bear a certain amount of expenses at the time of the claim.
Plastic parts and repair costMaximum is coveredNegligible cost is covered

What Is The Rate Of Depreciation In Vehicles?

The Insurance Regulatory and Development Authority of India (IRDAI) suggests the following as the depreciation rates, based on which the total depreciation of your car is calculated:

  • Rubber, nylon, plastic parts, and batteries – 50%
  • Fiberglass parts – 30%
  • 5% for wooden parts in the first year, and 10% in the second year, and so on
Age of Vehicle% of Depreciation
Less than 6 months5%
Less than 6 months but not exceeding 1 year15%
Less than 1 year but not exceeding 2 years20%
Less than 2 years but not exceeding 3 years30%
Less than 3 years but not exceeding 4 years40%
Less than 4 years but not exceeding 5 years50%

% Depreciation In Vehicles (Metallic Parts)

Age of Vehicle% of Depreciation
Less than 6 monthsNil
Less than 6 months but not exceeding 1 year5%
Less than 1 year but not exceeding 2 years10%
Less than 2 years but not exceeding 3 years15%
Less than 3 years but not exceeding 4 years25%
Less than 4 years but not exceeding 5 years35%
Less than 6 years but not exceeding 10 years40%
Exceeding 10 years50%

How Is Depreciation Calculated?

The depreciated value of a car or its parts takes into account its current market value and not the amount for which it was originally bought. It includes the sum of the basic cost, local taxes, and duties and cess. However, it does not include the cost of vehicle registration.

One of the major factors in determining the value of depreciation is the vehicle’s age. The older the vehicle, the higher its depreciation.

Since the zero-depreciation cover is an add-on, it will come with an extra cost on your premium.

Here’s an example of what the premium will look like for various car models, this is just to give you an idea.

Make and ModelVariantEx-Showroom PriceIDVPremium
Maruti Suzuki SwiftLXI (1197CC)INR 461176INR 286023INR 11385
Renault KwidCLIMBER MT (999CC)INR 396586INR 237952INR 8085
Tata NexonXT PETROL (1198CC)INR 694699INR 416819INR 11785
Hyundai Grand i10SPORTZ 1.2 CRDI (1186CC)INR 643437INR 386062INR 12244
Ford Endeavour3.2 TREND AT 4X4 (3198CC)INR 2697929INR 1618757INR 42698
Honda Jazz1.2 VX CVT I VTEC (1199CC)INR 827290INR 496274INR 19888

*Disclaimer: The insurer used for this calculation is ICICI Lombard Insurance. The place of registration used to calculate these premiums is Pune and the year of purchase used is 2018. Based on your specifics, the rates may vary.

Who Should Opt For A Zero Depreciation Cover Add-On?

If you have comprehensive insurance, the zero depreciation add-on is an excellent option for anyone and everyone, however, it’s particularly useful if you fall under one or more of the following categories.

  • If you own a car that is less than 5 years old, then you must go for a zero-depreciation cover add-on. 
  • You must go with this cover if you have just bought a new car. The value of your car will start depreciating the moment it will hit the six-month mark. This cover will protect your new car. 
  • If you have just started driving, you will take time to adjust to the road while learning on the go. In this event, you are more likely to damage your car. This cover will help you claim the damages incurred.
  • If you are the owner of a luxury car, the parts will cost you 3 times the normal prices. If your car meets with an accident or is damaged, you will have to pay a very heavy price. A zero-depreciation add-on will come to your rescue.

Benefits Of Zero Depreciation Car Insurance Cover

Don’t overlook the benefits of a zero depreciation add-on. They are as follows:

  • Save money – A zero-depreciation add-on will ensure that you do not have to shell out a single rupee from your pocket in the event of a claim. The insurer will pay you the full settlement amount. Without this add-on, you will have to bear the cost of depreciation of several parts of your vehicle.
  • Higher claim amount – If you secure your car with a zero-depreciation add-on, the depreciation cost on your car’s parts will not be calculated and as a result, you will receive a higher claim amount.
  • Peace of mind – A zero-depreciation add-on will ensure you do not spend from your pocket unnecessarily and will assure the insurance company’s full support to you during unforeseen circumstances. This drives away any financial burden, insecurity and ensures complete peace of mind.

What Is Covered In A Zero Depreciation Add-On?

With the zero depreciation add-on, certain circumstances are covered by the insurer and they are as follows:

  • Any damages due to natural calamities such as storms, landslides, floods, earthquakes, etc.
  • Damages suffered by the parts of a vehicle
  • Damages that your vehicle undergoes when it’s transported from one place to another
  • Damages due to man-made instances such as malicious acts, riots, fires, etc.
  • Any financial liability you face when your vehicle damages a third-party property or vehicle
  • Any financial liability you face when an individual is killed, wounded or hurt by your vehicle.

What Is Not Covered In A Zero Depreciation Add-On?

It’s good to keep some of the exclusions of a zero depreciation add-on in mind before you purchase one.

  • Driving without a valid license – If you do not have a valid car license, you will not be eligible to receive the benefits of a zero-depreciation add-on.
  • Cars above 5 years of age – Unfortunately, you cannot opt for a zero-depreciation add-on if your car is more than five years old. 
  • Driving while intoxicated – During the claim, if you are found to have been driving under the influence of drugs or alcohol, you will not receive the benefit of a zero depreciation cover.
  • Compulsory deductibles – Compulsory deductibles, if any, included in your car insurance plan are not covered by a zero-depreciation cover. 
  • Mechanical and electrical breakdowns – Mechanical and electrical breakdowns and normal wear and tear of your car are not covered under a zero-depreciation cover as a standard rule.
  • Engine oil cost – This add-on will not cover costs such as engine oil, clutch oil, brake fluid, coolant, etc.

What Are The Factors Affecting Your Zero Depreciation Car Insurance Premium?

The following factors are taken into consideration while determining your zero-depreciation car insurance premium:

  • City of Registration: Major metro cities such as Mumbai, Delhi, Kolkata, Ahmedabad, Chennai, etc. will mean a higher premium as compared to other cities. This is because the risk in every city varies and the premium for the add-on varies accordingly.
  • Sum Insured: The depreciation is deducted from the current market value of the car while calculating the premium.
  • Engine: Premium of vehicles with a higher cubic capacity is comparatively higher than of a vehicle with a lower cubic capacity.
  • Additional Accessories: Premium for car accessories and additional features is calculated separately.
  • Type of Coverage: Your premium will also depend on the type of coverage you opt for.
    • A comprehensive insurance cover will have a higher premium than a third-party insurance policy.
    • The age of the vehicle will also be considered.
  • Fuel Type: Whether it is a diesel, petrol, CNG or electric car, it is an important factor that will decide the premium.
  • Add-on Covers: Different add-ons such as personal belongings cover, zero depreciation cover, roadside assistance, etc. will also determine the premium.
  • Model of The Vehicle: With vehicle insurance, a lot of factors are dependent on the model of the vehicle, including premiums for this add-on. If the model is expensive, naturally the parts of the vehicle will be expensive as well. Hence, the model of your vehicle plays a vital role in determining the cost of premium for this add-on.
  • Age of Your Vehicle: The older your vehicle the higher the cost of replacing its parts. So, the premium depends on the age of the vehicle.

The Role Of Zero-Depreciation During Claim Settlement

If you are covered by comprehensive car insurance cover and your vehicle is damaged or meets with an accident, the insurer will consider depreciation of various body parts of the vehicle to arrive at a settlement amount. As per the IRDAI (Insurance Regulatory and Development Authority of India), 50% depreciation can be deducted on rubber, nylon, and plastic parts, and batteries. It’s 30% depreciation on fiberglass components, and 5%, 10%, and 15%, and so on depending on the age for wooden parts.

If you make a claim, the insurance company will reimburse the depreciated value of your car parts replaced. 

What a zero-depreciation car insurance policy does is ensure that the insurer does not calculate the depreciation of the replaced body parts. You are paid the full settlement amount, and you save a lot of money on top of that.

How Much Do You Pay From Your Pocket In Case Of Claim?

Let’s go through an example to explain how much you pay from your pocket in case of a claim. Say your car costs INR 8,00,000 then the approximate cost of damage to the parts and its depreciation would look like the following:

TenorsCost of damage (In Rs.)Cost of depreciation (In Rs.)
Metal parts10000500
Plastic parts120006000
Fiberglass parts2000600
Windscreen30000
Labor50000
Total320007100

*Disclaimer: The above figures are tentative, used just as an example. The actual cost will depend on the extent of damage and the factors considered by the insurer while calculating depreciation.

For the above scenario, with a normal car insurance policy, you will have to shell out approximately Rs 7100.

With a Zero-Depreciation Cover

Cost of premium and claimAmount without zero depreciation (In Rs.)Amount with zero depreciation (In Rs.)
Premium (A)71071707
Zero depreciation add-on (B)04278
Total cost (C) (A+B)710711385
Deductibles per claim (D)20002000
Repair cost (E)3200032000
How much do you pay (F)71000
Your annual expenses (G)2110017000
Your savings (E-G)1090015000

*Disclaimer: The above figures are tentative, used just as an example. The actual cost will depend on the extent of damage and the factors considered by the insurer while calculating depreciation.

Hence, even if you raise a claim more than once in a year, you will save a lot because of the zero-depreciation add-on.

Frequently Asked Questions

1. Is zero depreciation add-on only available for new cars?

You can purchase a zero-depreciation add-on for cars that are under 5 years old. However, some insurers offer this add-on for vehicles over the age of 5. You can contact the insurer and check with them.

2. What factors are considered while calculating vehicle depreciation?

Quite a few factors determine a car’s depreciation cost.

  • One of the major factors that affect the value of vehicle depreciation is its age.
  • The make, model, and variant, and the place where the vehicle is registered also plays a part in determining its depreciated value.
  • Also, the more the car is driven, the lower is its depreciation value.
  • The car’s general wear and tear are also considered while calculating its depreciation.

3. I am purchasing a third-party liability only cover. Can I add a zero-depreciation cover to the policy?

Unfortunately, third-party liability only covers cannot be customized. This means you cannot buy a zero-depreciation cover along with it. To purchase the add-on, you can opt for a comprehensive policy instead.

4. Is zero depreciation cover transferable to another owner?

Yes, the zero depreciation cover is transferable to the new owner of the vehicle. As the add-on is a part of your insurance which is based on the vehicle and not the owner, it’s transferable as long as the vehicle registration number remains the same.