What is zero depreciation car insurance?

Nitin bought a sparkling new sedan and he was on cloud nine. Proud and happy, Nitin took his car out for a spin when a speeding biker slammed into him coming from the wrong side. The right side of his car was badly damaged. Though his repair costs were considerable, Nitin didn’t have to pay much from his pockets. The reason – he had bought a zero depreciation car insurance policy which covered the actual costs of repairs without the effect of depreciation. Nitin, thus, got his sedan repaired at minimal out-of-pocket expenses. Do you know what a zero depreciation cover is?

To understand the meaning of a zero depreciation policy, let us first understand what happens when a car insurance claim is made. When you make any claim in your car insurance plan, the insurance company pays the costs incurred in repairing your car. However, the entire repair cost is not paid. The company deducts the cost of depreciation of the parts repaired and then pays the claim. This cost of depreciation reduces the claim amount considerably. To eliminate this cost of depreciation, a zero depreciation policy is recommended.

What is a zero depreciation car insurance policy?

A zero depreciation car insurance policy is a policy which pays the actual cost of repairs without taking into account the rate of depreciation applicable. In other words, in a zero depreciation policy, the rate of depreciation on the parts of the car is considered to be zero.

How is a zero depreciation policy helpful?

A zero depreciation policy is very helpful and the following points would tell you how:

  • You can get a higher claim amount

As mentioned earlier, the car parts are subject to depreciation. In case of a claim, the applicable rate of depreciation is deducted from the claim amount. Here is the rate of depreciation for the different parts of your car:

For plastic, nylon and rubber parts of the car 50%
For fiber glass parts of the car 30%
For metallic parts of the car 0% for the first 6 months. Thereafter, the rate of depreciation depends on the age of your car. It starts at 5% for the first year, 10% for the second year and so on.
Tubes and Tyres 50%

This depreciation reduces the value of your claim and you are forced to pay a higher proportion of claim out of your pockets. A zero depreciation cover nullifies the applicable depreciation and thus, increases the amount of claim paid.

  • The cover proves a blessing in case of high-end cars

If a luxury car or a sedan is so highly priced, can you imagine the cost of its parts? High-end cars use expensive parts. In case of damage, the effect of depreciation has the potential to cause a financial strain when you are required to pay 50% or 30% of the cost of the car’s parts from your pockets. If you have a zero depreciation policy, the value of the parts would not be depreciated and you can save your hard-earned money.

How zero depreciation policy works?

Let us understand how claims are paid in a normal car insurance plan and a zero depreciation plan when the car is damaged.

Below is the assumed item-wise cost of repairs done on the car which is more than 1 year but less than 2 years old.

A.      Cost of repairing the damaged headlight (fiber glass part) Rs.5000
B.      Cost of replacing damaged tyres (rubber part) Rs.25,000
C.      Cost of repairing the door (metal part) Rs.40,000
Total cost of repairs (A+B+C) Rs.70,000

Now, let us see how claims would be paid in both the plans (ignoring the compulsory deductible):

Plan 1 – comprehensive plan without zero depreciation cover Plan 2 – Zero depreciation car insurance plan
Claim paid for repair cost A = 70% of Rs.5000 = Rs.3500 Claim paid for repair cost A =Rs.5000
Claim paid for repair cost B = 50% of Rs.25,000 = Rs.12,500 Claim paid for repair cost B =Rs.25,000
Claim paid for repair cost C = 90% of Rs.40,000 = Rs.36,000 Claim paid for repair cost C =Rs.40,000
Total claim paid = Rs.52,000 Total claim paid = Rs.70,000

So, while a normal plan deducts the cost of depreciation, a zero depreciation policy pays the entire claim.

Points to remember

  • Zero depreciation is an add-on rider, which is added to a comprehensive car insurance policy by paying an additional premium.
  • This add-on is available for cars aged up to 5 years. Thus, older cars cannot avail the facility of zero depreciation.
  • There is a limit to the number of claim on which zero depreciation benefit would be applicable during the total duration of a car insurance policy.

So, now we have been able to provide you proper clarification on What is Zero Depreciation car insurance?A zero depreciation cover is, thus, a beneficial cover and should be added to your new or relatively new car. The additional premium payable is negligible compared to the higher amount of the claim payable. So, the next time you buy or renew your car insurance policy, opt for a zero depreciation cover.

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