Everything eventually loses its value over time be it your most valuable asset, such is the nature of life. We all buy new things and get used to using them in two days’ time and then they are no longer new for us.
The monetary value of items is also calculated based on their age, condition, and usage. The more an item is used, the lesser monetary value it will hold.
Depreciation in insurance is the loss of value of a car with time, as each part of the car wears out with tiIn checkingme, the value of your car also diminishes. And this is not only with a car, but the same also goes for your mobile, laptop, bike and any other assets. Depreciation is the decrease in value due to decay or regular wear and tear of your vehicle.
Think about this! You bought the latest iPhone XS in approx. Rs. 90,000 today, do you think if you go to the market after two years you would be able to sell it for Rs. 90, 000 only? Of course not. It is a universal fact!
Used items will have less value. The price of your iPhone will decrease because of obvious reasons, after two years it will not be as good as new.
Same as your iPhone, your car’s value too decreases very fast. When you buy the car it is new and after a few minutes, it is already used. The value of your car decreases to 91% of the initial market value the minute you purchase it. Its value drops quickly once it is used.
The car value continues to drop year after year. Car depreciation calculator uses the following values:
|
After 1 year |
your car's value decreases to 81% of the initial value |
|
After 2 years |
your car's value decreases to 69% of the initial value |
|
After 3 years |
your car's value decreases to 58% of the initial value |
|
After 4 years |
your car's value decreases to 49% of the initial value |
|
After 5 years |
your car's value decreases to 40% of the initial value |
Generally, depreciation is calculated by evaluating an item’s Replacement Cost Value and its life span. RCV represents the current cost of repairing the item or replacing it with a similar item, while life expectancy is the item’s average expected lifespan.
For example, if your car meets with an accident and most of its parts have been destroyed. You bought the car two years ago and it was in normal condition for its age before the accident. A similar car is of Rs.6 lakh today (the RCV). This car has a life expectancy of five years, meaning it loses 20% of its value each year. Because your car was two years old, it had lost 40% of its value before being destroyed in the accident.
The depreciation deductions listed below are designed by The Insurance Regulatory and Development Authority of India (IRDA):
|
On Rubber, Nylon, Plastic Parts and Batteries |
50% Depreciation is deducted |
|
On Fiberglass components |
30% Depreciation is deducted |
|
On Wooden parts |
Depreciation is deducted as per the age of the car |
|
On parts made of glass |
NIL |
We at Digit believe in providing the best car insurance add-ons and benefits to our customers so that they can make the most of their policies. One such very beneficial add-on cover is Zero Depreciation cover, now if you have this add-on cover with your comprehensive car insurance policy, you have a jackpot! This add-one cover gives you 100% coverage, covers every inch of your car leaving a certain engine damage, tyres, batteries, and glass. It is zero depreciation or Nil depreciation car cover that leaves out the depreciation from the insurance cover, thus ensuring complete coverage.
We're making insurance so simple, now even 5-year-olds can understand it.
Imagine you've just bought yourself a delicious ice cream cone.
But an ice cream is only ice cream if it's frozen, right? And even though it is perfectly frozen when you buy it, it doesn't stay that way. The forces of nature act upon it the moment you take it out of the freezer. It starts to melt.
Now suppose you want to sell your ice cream to your friend. You bought it for Rs. 100, and if you offer it to your buddy RIGHT after you bought it, it's still worth Rs. 100. But if you try to sell it 5 minutes later? It's melting! Your friend will offer you a lesser price for a melted ice cream, because its value has decreased. And the value decreases with every minute that the ice cream is out of the freezer, and the more it melts. That's depreciation!
Please try one more time!
Disclaimer: This information is added only for informative purposes and collected from different sources across the Internet. Digit Insurance is not promoting or recommending anything here. Please verify the information before making any decisions.
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