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

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.

You Get a More Comprehensive Coverage, Despite Your Driving Experience.

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.

It Reduces the High Potential Loss If You Own a Luxury or Expensive Car.

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.

In Summary: Why is it Better than Normal Cover?