Do you know even your comprehensive car insurance will not settle the entire claim amount? Though, it is always recommended to go for a comprehensive auto insurance policy over third-party liability policy in India, it is necessary to carefully read the fine print of this policy, which says, “depreciation and deductible have to be borne by a policyholder”.
Now, don’t ever think of dropping a comprehensive car insurance because it covers both you and your vehicle along with any third-party liability. So, go for a mid-path and add a zero depreciation cover to your main car insurance policy and get the complete coverage without any deduction of depreciation.
What is zero depreciation cover?
As stated above, when you file a claim, the car insurer settles it after factoring in depreciation. However, if you have a zero depreciation cover, the insurer will settle the entire claim amount without deducting depreciation. It is also known as nil depreciation policy and bumper-to-bumper insurance.
What is the role of depreciation in claim settlement?
A quick glance over your comprehensive motor insurance policy and you can easily figure out the high rate of depreciation, which is as follows:
| Age of a vehicle | Depreciation Rate |
| Not exceeding 6 months | Nil |
| Exceeding 6 months but not more than 1 year | 5% |
| Exceeding 1 year but not more than 2 years | 10% |
| Exceeding 2 years but not more than 3 years | 15% |
| Exceeding 3 years but not more than 4 years | 25% |
| Exceeding 4 years but not more than 5 years | 35% |
| Exceeding 5 years but not more than 10 years | 40% |
| Exceeding 10 years | 50% |
For car parts, the Insurance Regulatory and Development Authority of India (IRDA) has decided separate depreciation rates as follows:
| Nylon, rubber, plastic parts, and batteries | 50% |
| Fibre glass components | 30% |
| Painting work | 50%* |
| Wooden parts | As per the age of a car, like 5% in first year, 10% in second and so on |
* In the case of painting, the depreciation rate of 50% shall be applied only on the material cost of total painting charges. In case of a consolidated bill for painting charges,the material component shall be considered as 25% of the total painting charges for the purpose of applying the depreciation.
How bumper to bumper insurance can help you?
To understand this, let’s assume that there is a car accident and the damage amount is as follows:
| Parts of a car | Cost of damage (in Rs.) | Cost of depreciation | Rate of depreciation |
| Fibre glass | Rs 8,000 | 2,400 | 30% |
| Plastic part | Rs 5,000 | 2,500 | 50% |
| Rubber part | Rs 9,000 | Rs 4,500 | 50% |
| Labour Cost | Rs 3,000 | 0 | 0% |
| Total repair costs | Rs 25,000 | Rs 9,400 |
If you have a standard car insurance policy, you will have to pay Rs 9,400 from your pocket and the remaining amount will be settled by the insurer. However, the situation would be different if you buy a zero depreciation cover. Let’s take forward the above example to understand it:
| Factors | Car insurance policy without zero depreciation cover | Car insurance policy with zero depreciation cover |
| Total repair costs | Rs 25,000 | Rs 25,000 |
| A policyholder has to pay (cost of depreciation as stated above) | Rs 9,400 | 0 |
| Total expenses to be paid by a policyholder | Rs 9,400 | Nil |
A zero depreciation is useful because it lets you get the entire claim amount without any deduction for depreciation and also offers the following benefits:
- 100% coverage to your car in case of breakdown or accident
- Market value and depreciation do not impact your pocket
- Coverage is available for nylon, fibre, plastic, glass, etc.; which are normally excluded from a comprehensive motor insurance
Note, any deductible has to be paid by a policyholder. In the insurance terminology, deductibles can be divided under the following heads:
- Compulsory Deductible: Computed on the basis of the engine capacity of a vehicle, it is the fixed amount that must be paid by a policyholder before the insurance policy kicks in. The following is the compulsory deductible rate:
| Private Cars below 1500cc | Rs 1,000 |
| Private Cars above 1500cc | Rs 2,000 |
- Voluntary Deductible: It is the amount that a policyholder itself decides and thus, needs to be paid before the insurer settles the claim. By opting for a higher voluntary deductible, you can reduce your car insurance premium rates.
Let’s understand the role of deductibles with the help of an example.
| Factors | Car insurance policy without zero depreciation cover | Car insurance policy with zero depreciation cover |
| Insurance premium amount (A) | Rs 10,000 | Rs 15,000 |
| Deductible to be paid by the policyholder (B) | Rs 3,000 | Rs 3,000 |
| Total repair costs | Rs 25,000 | Rs 25,000 |
| A policyholder has to pay (c) | Rs 9,400 | 0 |
| Total expenses to be paid by a policyholder (a+b+c) | Rs 22,400 | Rs 18,000 |
In the above, even when the insurer has a zero depreciation cover, deductible and premium amount are paid by him/her. The insurer settles the claim after deducting deductible
Zero depreciation cover Vs standard car insurance policy
| Parameters | Zero Depreciation Cover | Comprehensive Cover |
| Role of depreciation | No depreciation is deducted from the claim amount | Insurer deducts the depreciation amount before the claim settlement |
| Type of vehicle | Available only for cars which are not more than five years old | Available for cars less than 15 years old |
| Coverage for rubber, nylon | Covered | Not covered |
| Premium | Slightly high | Low |
So, should you opt for a zero depreciation cover?
If you think you can bear the cost of repairing your vehicle and there is no problem if you get the lower claim amount, ditch zero depreciation cover. However, if you want to have a complete peace of mind, go with this rider. Though, you will have to pay slightly higher premium to get this cover, it will still be lower than the amount that you might have to pay in case of any mishap.
Moreover, it becomes more important to have a zero depreciation cover if you:
- Are a new driver
- Are the owner of a luxury car
- Have a car equipped with expensive accessories
- Drive in an accident-prone area
Go for nil depreciation cover even if it means shelling out slightly extra amount because the peace it gives you when you know there is someone for your help, is unmatchable.
So, let me reiterate, “Yes, a zero depreciation cover offers a great peace of mind for car owners”.
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