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Zero Depreciation Car Insurance: Definition, Benefits, & Factors To Consider

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What is Depreciation?

If you are not from the commerce background, this may come as a surprise. The concept of depreciation takes into account the value depletion that an asset goes through because of excessive usage, the passage of time, or wear & tear. In short, if you have owned and used an asset for a while, its value will get depreciated at a specific rate. This depreciation generally helps businesses control their profit margins and pay lower taxes.

For individual owners of cars, depreciation does more harm than loss. When you buy a car and get insurance on it, the coverage you are getting gets impacted by the depreciation rate. For the sake of understanding the concept of depreciation, you may use a single drop in percentage over the years. That said, your insurer calculates car depreciation on different components of your car.

As per IRDA, the apex body of insurance regulation in India, your insurer can calculate depreciation of as much as 50% on rubber, plastic and nylon parts, 30% on fiberglass parts and 5% for the first year as well as 10% from the second year on all the wooden parts.

Most of the depreciation is calculated on an annual basis. Thus, even if you are a careful driver and have not been in any accidents with your car, the coverage of your car is still far lower than its actual cost.

What is Zero Depreciation?

Zero Depreciation is an add-on to your car insurance. Under this facility, your insurer will cover the actual cost of the car and not take the depreciation into consideration. So, if an unfortunate event takes place and you have to claim your insurance, your insurer will reimburse an amount very close to the actual cost of the car. There are some terms and conditions you will know further below. Despite their presence – Zero Depreciation mitigates the risk of paying additional damages from your pocket even if you have an insurance policy.

Benefits Of Zero Depreciation

Zero Depreciation comes with a ton of advantages that are not included in the standard cover.

Get a More Comprehensive Coverage

Generally, your driving experience and accidental history contribute to the risk factor that the insurance company calculates for your profile. The Zero Depreciation coverage does not take that into account. It nullifies merely the effect of depreciation to a large extent and helps you get more out of the same coverage policy.

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It Reduces the High Potential Loss

The simplest way to decode this would be with an example. Assume that you bought a car for ₹50 lakhs. This car has fiberglass, wooden, rubber, plastic, and nylon components. All of them accumulated, the car is losing over 10% of its value every year.

You are a careful driver, but because of some other driver’s negligence, your car got into an accident in the third year of ownership. When you claim your insurance, you would have automatically incurred the loss of over ₹15 lakhs in the value depreciation of your car.

The numbers are fictional, but they prove the point – if you own a slightly expensive car, even in the sub ₹10 lakhs – ₹15 lakhs range, Zero Depreciation will save you from tremendous loss.

Cost of Replacement for Parts Becomes Next to Zero.

In a normal insurance policy, you will only get the reimbursement on the depreciated value of a car’s component. Even if the component is in excellent working conditions, you will have to pay from your pocket for the replacement since the insurer will bear only the depreciated cost. Zero Depreciation saves you from incurring this additional cost, and the part is valued at its original price.

Factors to Consider Before Getting a Zero Depreciation Insurance

Although it sounds like a great deal, you should consider these factors before you buy Zero Depreciation add-on:

  1. Ownership Tenure: The add-on is great for people who use their car for five years or less. If your car is more than five years old, most probably, you will not be eligible to get a Zero Depreciation add-on. Your insurer can give you more specific information on this.
  2. Affordability of Incremental Premium: Since the coverage of the insurance policy is going up, the premiums will also increase. If you want to decide whether it will be worth getting the add-on, just check the difference between normal coverage and normal + Zero Depreciation If the difference is too big, the add-on will be great for you.
  3. Issue-Based Coverage: The add-on may not cover all points of risk for your car. For instance – some insurers don’t include minor accidents or car dents in the Zero Depreciation add-on.

Which Factors Affect the Zero Depreciation Premium?

If you want to get an estimated understanding on what your additional Zero Depreciation premium may look like, take a look at these factors:

  1. Car’s Model and Age: If your car is more than three years old, the premium would be higher. Plus, your car’s spare parts are rare or not produced by the OEM anymore, the premium will go up.
  2. Your Geographic Location: Your insurer will calculate your risk profile by assessing the geography you live in. If your geographic location is prone to more risks than average, your premium may go up.
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In Summary: Why is it Better than Normal Cover?

Factor Zero Depreciation Normal Cover
Depreciation No Effect Reduces Coverage
Tenure of Coverage Cars which are more than 5 years old might not be eligible The age of the car might be as long as 15 years
Premium Marginally Higher Normal
Risk of Having to Pay for Certain Damages Low High
Ideal for All types of car owners Owners of cars older than 5 years

Can we get zero depreciation insurance beyond 5 years?

The zero depreciation insurance is usually offered to new cars and it is applicable only up to a period of five years. The reason for insurance companies not renewing a similar policy beyond five years is that the depreciation of the vehicle is fairly low in its initial years. Beyond five years, the depreciation rate goes over 40% making the stakes high for insurers, and hence zero depreciation insurance is not available after five years.

How many years of zero depreciation policy can be availed?

The zero depreciation insurance policy can only be availed by the vehicles that are less than three years of age. Considering the depreciation and other additional costs of the vehicle, most insurance companies restrict the policy benefits up to five years. The premium costs of this policy cover are generally higher than the normal insurance policy.

What is zero depreciation cover?

The zero depreciation insurance cover is available only for vehicles that are less than three years of age. This insurance plan benefits the user in the case of an accident, the user can claim for the full amount of the vehicle and the insurance company has to pay the entire claim amount without considering the depreciation value of the vehicle.

Is zero depreciation required?

It is not necessary for all to take the zero depreciation insurance cover. However, there is a huge pack of benefits linked with this policy that attracts the car owners.. In case of an accident, the insurance company has to pay the full claim amount without considering the depreciation value of your vehicle. This policy is generally availed by people having luxury cars or by people who live in risk-prone areas.

What is the zero depreciation premium?

The premium amount that you need to pay every year for the renewal of zero depreciation insurance policy is known as zero depreciation premium. The premium of such a policy is higher than that of a normal insurance policy. As you get better add-ons and benefits under this type of insurance policy, therefore, you have to pay a marginally higher premium to avail of this policy.

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