Insurance is like a spare tyre. You may not require it, but not having one is not an option.
  • Zero Depreciation Car Insurance

    What is zero depreciation car insurance cover?

    Zero depreciation is an additional benefit (add-on) that every car owner can enjoy at the cost of paying an extra/higher premium. Zero depreciation is usually not included in the standard/comprehensive no-frills insurance policy.

    At the time of insurance claims, every insurance company always calculates and applies the depreciation rate to decide the amount payable (with reference to the damaged part of the car) for settling the claim. The difference in cost between the market price of the new part and depreciated part needs to be shelled out by the insured/car owner.

    With zero depreciation add-on, when you file an insurance claim due to damage/loss to your car, the insurer covers the entire cost without accounting for/counting in the vehicle’s depreciation. Zero deprecation is an attractive prospect for customers who want a smooth claim settlement in the future, along with peace of mind. For a brand new car, buying this add-on is definitely a worthwhile investment as long as paying the additional premium doesn’t burn a hole in the owner’s pocket.

    What is depreciation rate in car insurance?

    Though the depreciation rates taken into account vary from one insurance company to another, there are some standard policies followed by every company. Some parts of the car age faster than the others. Hence the depreciation value is higher for them. Depending on these factors, the insurer applies different depreciation rates for different parts of the car.

    Rubber/plastic parts, tyres/tubes, battery etc. are susceptible to maximum amount of wear and tear. Hence, the depreciation rates applied on them are usually higher compared to other parts like fibre glass, etc. The depreciation of metallic parts are based on the age of the vehicle.

    The Insurance Regulatory and Development Authority (IRDA) has set some guidelines on the depreciation of car parts:

    Plastic, nylon, and rubber parts 50% depreciation is deducted
    Car batteries 50% depreciation is deducted
    Fibreglass components 30% depreciation is deducted
    Wooden and metallic components The depreciation is calculated based on the age of the vehicle. This could be 5% at the end of the first year, 10% at the end of the second year, and so on.

    Some important aspects of zero depreciation

    • Applicable only on new cars

    Usually, only new cars can avail the zero depreciation add-on. A certain age limit is given by the insurer, with regards to the same. If your car is older than the specified limit, it is not eligible to enjoy this add-on.

    • Compulsory excess

    The coverage offered is not 100%, always. Some insurers don’t cover normal wear and tear and mechanical breakdown under this add-on. Every customer who has taken a zero depreciation has to pay a mandatory policy excess. This is known as compulsory excess.

    • Restriction on number of claims

    A zero depreciation add-on cover may limit the number of claims that can be made annually. Again, this may vary from one insurance company to another.

    Your car is vulnerable to a lot of threats, damages and unforeseen circumstances. A comprehensive car insurance policy protects your car from every possible danger. Strengthen this protection by choosing from a wide range of add-on covers. Give your vehicle the attention and care it deserves by choosing the right car insurance policy and add-on covers.

    Differences between zero depreciation and comprehensive car insurance policy

    Comprehensive Car Insurance Policy Zero Depreciation Car Insurance
    Is the all-encompassing car insurance policy inclusive of add-on covers and protection against financial liabilities arising from a number of common, everyday scenarios. This insurance policy protects the owner/driver of the vehicle against the depreciation factor due to normal wear and tear that impacts the settlement value in case of claims.
    Usually includes add-on covers to boost the overall effectiveness of the policy (Eg- Personal accident cover, Hospital cash, Key replacement cover, etc.) Is usually offered as an optional add-on cover alongside the comprehensive car insurance policy. However, customers can also choose to opt for this as a standalone policy.
    Since many scenarios are covered, the applicable premium amount is expected to be higher, however it is lower as compared to Zero Depreciation policy. Since this policy provides protection against ONLY the depreciation factor, the applicable premium amount is expected to be low. However, it is higher when compared to the normal policy.
    Ideal for those who are looking for complete protection for their cherished vehicle and are conscious about the budget involved. Ideal for those who deem themselves confident drivers and could do with a little less insurance. Also, people can opt for this policy to stop losing money due to the depreciation factor when raising a claim.

    Benefits of zero depreciation car insurance

    The following points illustrate the benefits of zero depreciation car insurance, from the context of an average, everyday motorist-

    • When raising a claim, the insured is assured of 100% settlement of the cost of the vehicle’s repairs, without taking into consideration the depreciation factor that arises from normal wear and tear.
    • The normal, comprehensive car insurance policy doesn’t account for damages incurred by the glass, plastic, nylon, fibre, etc. parts of the vehicle. However, zero depreciation policy pays for all of these.
    • The inherent cost of subscribing to the zero depreciation car insurance policy might be a tad more than the conventional policy, however, this gap is usually made up for when the insured raises a claim after a particularly nasty accident.
    • Assures 100% mental peace and satisfaction to the insured, in the knowledge that he/she is unlikely to lose any money when tending to their damaged vehicle. Technically, they are repairing their accident battered vehicle for free.

    Is zero depreciation insurance promoting careless driving?

    Considering the watertight protection offered by the Zero Depreciation Insurance policy in the case of a claim, many subscribers may feel a sense of invincibility in the knowledge that with this cover, all their losses will be recovered without losing anything to the depreciation factor. This begs the question- Is zero depreciation insurance policy promoting careless driving?

    Yes No
    Customers’ attitude towards expensive auto repairs is changing, as everything can be set right at little to no personal expense. Customers are still concerned about the No Claim Bonus (NCB). They lose this lucrative benefit when they raise a claim.
    Customers use these trips to the garage to refill up on, and set right nags that may not require servicing. Every inconsequential problem with the vehicle is likely to send it packing to the garage. Most people still consider Zero Depreciation insurance to be an expensive indulgence. If they have it, they are more likely to utilise it in extreme cases of damage incurred by their vehicle.
    Zero Depreciation Insurance is usually not available for the entire lifetime of the vehicle. Thus, individuals might be tempted to avail it before the time runs out on them. For the unsure driver, Zero Depreciation Insurance acts like a confidence booster. It is bound to take away the fear of incurring massive repair bills if damage were to happen, and help the subscriber prepare better for a rainy day.

    Thus, this question has no clear cut answer. How the policy will be used and if it breeds careless driving habits will ultimately depend on the individual driver. However, recent instances point to car insurance companies paying particular attention to this disruption inducing policy and have denied its availability to specific vehicle makes that have been known to be particularly prone to accidents and damage.

    Who should purchase the zero depreciation cover?

    If you are the owner of a new car, buying a zero depreciation rider to enhance its insurance coverage is a good idea. The rider also suits new drivers who are more prone to damaging their vehicles. However, it should be noted that even the most experienced of drivers can be involved in an accident that was the fault of the third-party. In this situation also, a zero depreciation cover would come to the rescue of the driver.

    So, if you own a new car and do not mind paying the extra premium for this add-on cover, you should go for it.

    What is the additional premium payable for a zero depreciation cover?

    Since a zero depreciation cover offers you the entire claim amount without considering depreciation, it will certainly be priced quite high. The general understanding is that a car insurance policy with zero depreciation add-on cover will cost around 15%-20% more than the base policy alone.

    However, the actual cost varies on the basis of the policyholder’s driving history and the regulations set by the insurance company.

    What are your savings in a year when you have a zero depreciation cover?

    Let us consider an example to understand how the zero depreciation cover works in the event of a claim. Say, the cost of your car is Rs.8 lakh. Suppose the cost of damage to its parts and depreciation is as shown below:

    Part of the car Cost of damage (Rs.) Percentage depreciation Cost of depreciation (Rs.)
    Metal part 10,000 5% or 0.05 500
    Fibreglass part 2,000 30% or 0.3 600
    Plastic part 10,000 50% or 0.5 5,000
    Windscreen 2,000 0 0
    Labour 5,000 0 0
    Total expenses 29,000 - 6,100

    So, if you have a comprehensive car insurance policy without the nil depreciation cover, you will have to pay Rs.6,100 for the repairs.

    Now consider a scenario in which you have the zero depreciation cover attached to your base auto insurance policy. The total expenses that you will be bearing in a year are as detailed in the table below:

    Cost of auto insurance and claim amount Amount without zero depreciation cover (Rs.) Amount with zero depreciation cover (Rs.)
    Basic premium (I) 14,000 14,000
    Cost of zero depreciation add-on (II) 0 3,000
    Total cost of the policy (A) = (I) + (II) 14,000 17,000
    Deductible for each claim raised (III) 3,000 3,000
    Cost of repair of the car, based on the table above (IV) 29,000 29,000
    Cost of depreciation borne by the policyholder, based on the table above (V) 6,100 0
    Total expenses borne by the policyholder (B) = (A) + (III) + (V) 23,100 20,000
    Policyholder’s savings (C) = (IV) - (B) 5,900 9,000

    The above table indicates that the policyholder can get significant savings even if he/she raises only one claim in a year.

    Exclusions in zero depreciation plans

    Zero depreciation plans, also referred to as bumper to bumper insurance, have some exclusions as described below:

    • The plan is not offered to cars that are more than 5 years old.
    • The zero depreciation cover is not provided to vehicles that have clocked more than a specified number of kilometres.
    • Nil depreciation cover usually has limitations on the maximum number of claims that can be raised in a year. This is implemented by insurers to prevent policyholders from raising claims for every small dent or damage. The limits vary between insurers, so you should check the policy documentation to understand the specifics for your plan.
    • A zero depreciation cover does not protect the car from damage to its engine through oil leakage or water ingression.
    • Standard wear and tear to cars and car parts such as clutch plates, tyres, bearings, etc. are not covered under nil depreciation insurance.
    • Other exclusions from bumper to bumper insurance include mechanical breakdowns (that do not result in an accident) and consequential damages.
    • Cost of oil, such as gear oil, clutch oil, brake oil, engine oil, coolant, etc. are not covered.
    • Compulsory deductibles are not covered under a zero depreciation plan. At the time of a claim, the amount corresponding to compulsory deductibles will have to be borne by the policyholder.
    • A private car being used for commercial needs is not included in the coverage of the plan.
    • The driver not carrying a valid driving license is also not covered.
    • The driver being under the influence of drugs or alcohol is excluded from coverage.
    • If the claim is not made within the stipulated timeframe, it will not stand valid.
    • The driver using the car for malicious purposes is also not covered.

    When is a zero depreciation claim null and void?

    When a claim is raised against a zero depreciation add-on cover, it will not be honoured by the insurance company if any of the exclusion criteria are met. It is important that the policyholder furnishes accurate information with justifying documents when raising the claim to prevent it from being invalidated.

    Shortcomings of nil depreciation cover

    • One of the main disadvantages of buying bumper to bumper insurance is the cost factor. If you are looking to insure your car at a minimal cost, then this is not an option.
    • Zero depreciation cover also has a considerable number of exclusions. The basic exclusions involved in comprehensive car insurance are valid here as well.
    • Zero depreciation cover is not offered to vehicles that are more than 5 years old.
    • There are limits on the maximum number of claims that can be raised under a zero depreciation cover in a year.

    Does it make sense to go for this cover?

    If you are not very particular about containing your car insurance expenses to a certain limit, then you should go for a zero depreciation cover. This will enhance the coverage of your policy to a great extent and offer maximum protection for your car.

    • The zero depreciation cover is very useful for owners of new cars.
    • Also, if you are not an experienced driver, it makes sense to buy this coverage.
    • Owners of high-end cars with expensive parts can also benefit from this insurance cover.
    • If you live or park your car in an area where the incidence of car thefts or other such crimes are high, you should protect your vehicle with bumper to bumper insurance.
    • If you are conscious about small dents or bumps that may surface on the body of your car, you should consider taking zero depreciation insurance.

    Zero Depreciation Car Insurance FAQs:

    1. What factors affect the premium of a nil depreciation cover?

      The premium you pay towards a zero depreciation add-on cover is based on the following factors:

      • Age of the vehicle
      • Model of the car
      • The location of usage and parking of the car
    2. Which insurers in India offer zero depreciation insurance?

      Most of the Indian insurance companies offer zero depreciation cover as an add-on policy. This includes:

      • Bajaj Allianz
      • Bharti AXA
      • Tata AIG (refers to the add-on as depreciation reimbursement cover)
      • Royal Sundaram (refers to the add-on as depreciation waiver cover)
    3. Will the zero depreciation add-on policy offer coverage for theft of the car’s tyres?

      This depends upon the policy wordings. Usually insurers offer this cover only for the repair or replacement of tyres/tubes due to accidental damage.

    4. I have a restricted cover policy with my insurance company. Can I avail the nil depreciation add-on insurance for my car?

      No, add-on covers can be availed only with a comprehensive package policy.

    5. I have heard that insurers offer add-ons as bundles. Can I choose only the zero depreciation add-on?

      Insurance companies offer add-on covers in bundles so that a customer’s policy coverage is optimised. However you can request for only the zero depreciation add-on cover, if that is what you specifically require.

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