What is Zero Depreciation in Car Insurance?

A lot of people believe they have complete protection with car insurance, until they get the bill for damages after an accident. That’s where Zero Depreciation cover comes in as a smart add-on to have for new or high-value car buyers in India. Zero Dep or Nil Depreciation insurance, also called Zero Depreciation Car Insurance, makes sure that the amount you get from your claim is not reduced because of the depreciation of plastic, fibre, or metal.

Since repairing modern cars can be expensive and many parts are now advanced, having this cover is more important than before. Research from IRDAI has found that over 40% of vehicle policies for cars younger than 5 years now get Zero Dep coverage, mostly for cars priced between ₹8–20 lakh.

No matter which car you drive, understanding how Zero Depreciation cover works can mean the difference between a frustrating claim and a full payout.

What is zero depreciation car insurance?

Zero depreciation car insurance is an add-on to a comprehensive car insurance policy that ensures you don’t have to pay depreciation costs at the time of settling claims. If your vehicle gets damaged in an accident, the entire cost of repairs and replacement of damaged parts will be borne by the insurance company, without deducting any depreciation charges. The cover applies to vehicles up to 5 years of age. 

Who should opt for zero depreciation car insurance?

Regardless of whether you are a new car owner or have been driving for years, adding a zero depreciation cover to your current insurance plan can work well in your favour. You should purchase this policy under the following conditions:

• If you are a new car owner, it is beneficial to have zero depreciation car insurance as an add-on cover to the policy you select.
• Those who own luxury cars need to understand that repairing and/or replacing components can lead to exorbitant costs during claims. A zero depreciation cover helps to steer clear of such expenses.
• Similar to luxury car owners, sports vehicle owners should consider this type of insurance to account for the costs of repairing and/or replacing parts.
• If you stay in high-risk zones where the chances of accidents are high, it is best to opt for this policy to protect your vehicle against damage in the future.
• Those who are learning to drive a car should purchase zero depreciation car insurance to minimise out-of-pocket expenses, which occur in case of accidents.

What are the benefits of zero depreciation car insurance?

At times, car owners feel this type of cover isn’t necessary, but it has numerous advantages, such as:

• Better coverage: Once you include a zero depreciation cover in your present car insurance plan, it augments your overall coverage, while granting peace of mind that the vehicle is financially secure against damages, depreciation, etc.
• Nominal rates: Purchasing a zero depreciation policy results in nominal extra charges to your car insurance plan, while offering numerous benefits.
• Higher payout during claims: In the absence of a zero depreciation car insurance policy, the replacement costs will be calculated as per the depreciation value at the time of the claim. Including this policy ensures the payout is higher, as the amount of depreciation isn’t factored in while settling claims.
• Reduces out-of-pocket expenses: Sometimes, you have to pay extra even if you have a comprehensive car insurance plan for the repair or replacement of the vehicle’s components, which can put a significant dent in your finances. As mentioned, it can be prevented if you have a zero depreciation policy since the depreciation won’t decrease the insured declared value.

How is a zero depreciation premium calculated?

There are multiple factors affecting zero depreciation premiums, such as:

• Vehicle age: Depreciation rate is directly affected by the vehicle’s age, which in turn helps the insurer calculate your premium. The older your car is, the higher its depreciation rate, and accordingly, the premium is higher.
• Make and model of the car: The make and model of the vehicle impact the cost of repairs and/or replacement. If your car has expensive parts, the insured declared value is higher, which increases the premium.
• Fuel type and engine: The premium varies depending on the car’s fuel type, such as electric, CNG, petrol, or diesel. You might have to fork out extra for engines with a higher cubic capacity as well.
• Location: The cost of premiums differs from place to place, including the area you reside in. For instance, premiums for zero depreciation are higher in metropolitan cities as compared to tier-2 towns. On the other hand, premiums could be lower for those who live in a place with less traffic.

What are the depreciation rates in car insurance?

Depreciation in the case of vehicles is defined as the periodic decline in the value of car components based on usage, age, wear and tear, and so on. Depreciation rates for vehicles and their components in India are decided by the Insurance Regulatory and Development Authority of India (IRDAI). Which are: 

Age of The Vehicle	Rate of Depreciation
Less than 6 months	5%
6 months to 1 year	15%
1 year to 2 years	20%
2 years to 3 years	30%
3 years to 4 years	40%
4 years to 5 years	50%
More than 5 years but less than 10 years	It is decided between the insurers and car owners

Here is another table highlighting the covered car components and their rate of depreciation: 

Car Components	Rate of Depreciation
All rubber, nylon/plastic parts, tyres and tubes, batteries, and air bags	50%
Fiberglass Components	30%
Wooden Parts	5% in the first year and 10% in the second year
Paintwork	50% of the material cost of total painting charges or 25% of the total painting costs for the consolidated bill of painting charges.
Glass Parts	Nil
Metallic Components	Depends on the vehicle’s age

What are the criteria to claim zero depreciation?

You can claim the zero depreciation car insurance only if it meets one of the following conditions listed below:

• Vehicles damaged due to natural and man-made disasters, which include storms, floods, landslides, earthquakes, hurricanes, vandalism, riots, etc.
• Cars that are damaged during accidents.
• If your car is damaged during transit while being relocated from one destination to another.

What is not included under zero depreciation car insurance?

While zero depreciation car insurance sounds great, there are certain situations under which it becomes null and void. Take a look:

• Total loss scenario: If there is an accident that renders the vehicle a total loss, or if the car has been stolen, the zero depreciation add-on is voided, and you will be paid as per the insured declared value, which includes depreciation.
• Regular wear and tear: Electric or mechanical failure, along with normal wear and tear, won’t be covered under this policy.
• Vehicle age more than five years: Zero depreciation car insurance doesn’t apply to vehicles over five years old.
• Driving without a proper licence: If you meet with an accident while driving with an expired or invalid licence, the insurance company won’t consider the zero depreciation coverage.
• Compulsory deductibles: While settling claims, the depreciation won’t be factored in, but deductibles have to be paid.
• Driving under influence: If your car has sustained damages while you were driving under the influence of drugs, alcohol, or any intoxicating substance, the zero depreciation cover is voided, along with any other car insurance policy.
• Cost exceeding insured value: If the repair and/or replacement costs are more than the insured value for the car, the zero depreciation policy becomes null.
• Replacing certain parts: Replacement or tyres and tubes, unless specified in the policy won’t be covered, along with loss of consumables such as nuts and bolts, screws, gearbox oil, brake oil, lubricants, etc. aren’t covered.
• Twice under the policy term: You can claim zero depreciation only for the first two claims under the tenure of the said plan. Subsequent claims won’t be valid, and you can’t claim this cover twice in the same year.

How to get zero depreciation car insurance?

Several insurance providers offer this type of cover as an add-on to your regular policy. Follow these steps:

• Go to the website of the insurance provider.
• Select the “car insurance” option and enter details such as registration number, make, and model etc.
• Once you have verified the vehicle details, click on the available plans and select a comprehensive car insurance plan.
• Choose the zero depreciation cover as an add-on.
• The total premium amount is displayed on the screen; pay the premium to complete the purchase.

An acknowledgement email containing details of the policy, along with the zero depreciation cover, is sent to you. While renewing the zero depreciation add-on, you have to follow the same instructions and pay the premium accordingly. Remember to keep track of the deadline so that you can renew on time.

Summary:

A zero depreciation car insurance policy is valuable as it helps to cover significant costs for damages to your vehicle at the time of settling claims. Whether your vehicle has been in a road accident or urgently requires repairs, you can file a claim to get the proper compensation amount. It not only protects the policyholder from grave financial losses by minimising out-of-pocket expenses but also grants peace of mind. Even though the overall cost of the insurance policy increases if you purchase a zero depreciation waiver as an add-on, the extra charges are extremely nominal.

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