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Zero Depreciation Car Insurance: Is it Right for your Car?

Depreciation often refers to the loss in value of an asset over time due to factors such as age, wear and tear, and obsolescence. Vehicles, in general, are depreciating assets. For example, a new car will cost more than an older one. Similarly, there is a certain depreciation associated with all the materials the car is made up of such as glass, plastic, metal etc. Each of the materials or parts have a different rate of depreciation.
 
In the event of an accident, if your car is damaged, you may not be able to recover the entire expense incurred on the parts replacement. The insurance company only pays for the replaced parts after deducting the depreciation amount. The insured person has to pay for the difference between the market value of the new part and the depreciated part of the car.
 
It is a good idea to avail zero depreciation for car insurance. With the help of it, you get maximum reimbursement during the time of claim and get the most out of your car insurance policy.
 

What is Zero Depreciation Cover?


A car insurance with zero depreciation cover helps protect your car against all physical damages caused to the car without factoring in the element of depreciation. Although a standard motor insurance policy​ covers you against losses arising in case your car is damaged or stolen when you file for a claim settlement, the compensation is received after a standard deduction of depreciation.
 
On the other hand, a car insurance​ with zero depreciation cover can fetch you the entire compensation amount.  A zero depreciation add-on cover can be availed for brand new vehicles and also can be opted for at the time of policy renewal.

In a car insurance zero depreciation policy, the entire claim amount is paid by the Car Insurance Company without considering the depreciation on the value of the car. Obviously, you have to pay slightly more in terms of your premium. However, this add-on feature is highly recommended to everyone considering the fact that it eliminates the possibility of any out-of-pocket expense from the owner.

A policyholder gets the following benefits with a zero depreciation add-on cover:


  • Helps curb out-of-pocket expenses since depreciation cost is not taken into account while filing for a claim settlement
  • Most of your claims regarding the insured parts are settled without taking the depreciation amount into consideration.
  • It adds more value to the basic automobile insurance coverage and makes your investment almost nil
With this cover, you can be assured of a complete peace of mind. Also, with all major insurers offering this cover, you can save yourself a lot of hassle by purchasing a nil-depreciation cover by paying a little extra premium.
 

Zero Depreciation Cover Vs Normal Car Cover


Let’s quickly look at how a zero depreciation cover varies from a normal car insurance cover:

  • Value consideration at the time of Claim Settlement: Depreciation does not affect the claim settlement and the full compensation is given to the insured in case of zero depreciation cover. On the other hand, in case of a normal car insurance cover, the claim amount is received after a standard deduction of depreciation.
  • Premium: The premiums to be paid for a zero depreciation cover are higher than those for a normal car insurance cover.
  • Repairing Costs: The repairing costs of fiber, glass, rubber, and plastic parts are borne by the insurer in case of zero depreciation cover whereas, in case of a normal car insurance cover, these repairing costs have to be borne by the insured.
  • Age of the car: A zero depreciation cover is meant for new cars whereas a normal car insurance cover can be taken for cars older than 3 years.

Factors to Consider before Opting for Zero Depreciation Cover


The following are a few important points to consider while opting for car insurance with zero depreciation policy:
  • Consider the age of your car. The car insurance zero depreciation policy is applicable to cars under the age limit of 3 years. So in other words, only new cars are eligible for 0 depreciation car insurance. 
  • As compared to a regular car insurance policy, zero depreciation car insurance will be slightly more expensive in terms of premium. It is not advisable to pay high premiums for cars older than 3 years. Although, if you own a luxury car or live in a high-risk area, you should consider opting for zero depreciation cover add-on. A zero depreciation policy premium depends on 3 main factors:
 a) Age of the car
 b) Model of the car
 c) Your location

  • You can make only a certain number of claims under the 0 depreciation car insurance. This is to limit the customers from making claims about every small dent in their car.
Remember that in case you make a claim, with a basic car insurance policy, the insurer only reimburses the depreciated value of the car parts replaced. As per the Insurance Regulatory and Development Authority of India (IRDA), the following rate of depreciation for the car parts has been defined:

  • On rubber, nylon and plastic parts, and batteries – 50% depreciation be deducted,
  • On fiberglass components – 30% depreciation be deducted
  • On wooden parts – depreciation be deducted as per the age of car (such as 5% in the first year, 10% in the second year, and so on)

Who Should Buy Zero Depreciation Cover?


In order to protect your brand new car from any unforeseen events, it is advisable to opt for a zero depreciation cover.  Buying a zero depreciation car insurance in India can also prove to be beneficial to: 

  • People with new cars
  • People with luxury cars
  • New / Inexperienced drivers
  • People living in accident-prone areas 
  • If you worry about small bumps and dents
  • If you have a car with expensive spare parts 
It is a general belief that zero depreciation policy is apt for new or inexperienced car drivers as they are more prone to get the car damaged. However, this cannot be considered as a rule of thumb because there have been numerous cases where the most experienced drivers were caught in unfortunate events due to the fault of other drivers.