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An old car is always valued less than a new one while buying and reselling. This is due to the depreciation of car components over the years, as they have a limited lifespan. So, depreciation is a factor that affects the monetary value of your car due to the natural wear and tear as you use it.
Since your car’s value is one of the factors determining the IDV of your car insurance policy; thus, as your car depreciates over the years, its Insured Declared Value (IDV) reduces. This implies that if you make a claim, the car insurer will deduct the depreciation amount from the total claim amount payable, and you will receive compensation lower than the car’s actual value. However, the solution to this is opting for a zero-depreciation car insurance add-on.
Note: Consumable cover in Bike Insurance has been filed as Digit Private Car Parts Depreciation Protect - Consumable Cover with Insurance Regulatory and Development Authority of India (IRDAI) with UIN number IRDAN158RP0005V01201718/A0009V01201718.
Cars start losing their value from the moment they are driven on the roads, but what determines how much depreciation they will incur? Let us read about the factors that affect it.
The car’s age and Insured Declared Value (IDV) determine its depreciation value. The older the car, the higher the depreciation incurred. The manufacturing year of the car is also considered while calculating the depreciation on car parts.
Your insurance company will calculate the exact amount of depreciation after considering the routine wear and tear for various car parts like tires and tubes, nylon parts, wooden inserts, batteries and airbags, fibreglass, and paint, excluding the glass parts.
The Insurance Regulatory and Development Authority of India (IRDAI) has regulated the depreciation rates on different parts of the car as follows.
Car parts replaced are subject to a deduction for depreciation at the rates mentioned below.
Parts Wise |
Depreciation Rate (%) |
||||||
Rubber, Nylon and Plastic Parts |
50% |
Fiber Glass |
30% |
Glass |
Nil |
Car Paint |
50% depreciation on the material cost of total painting charges. 25% of the total painting charges (in case of consolidated bill of painting charges). |
Age of Vehicle |
% of Depreciation |
||||||||||||||
Not Exceeding 6 months |
Nil |
Exceeding 6 months but not exceeding 1 year |
5% |
Exceeding 1 year but not exceeding 2 years |
10% |
Exceeding 2 years but not exceeding 3 years |
15% |
Exceeding 3 years but not exceeding 4 years |
25% |
Exceeding 4 years but not exceeding 5 years |
35% |
Exceeding 5 years but not exceeding 10 years |
40% |
Exceeding 10 years |
50% |
Age of Vehicle |
% of Depreciation for Fixing IDV |
||||||||||
Not Exceeding 6 months |
5% |
Exceeding 6 months but not exceeding 1 year |
15% |
Exceeding 1 year but not exceeding 2 years |
20% |
Exceeding 2 years but not exceeding 3 years |
30% |
Exceeding 3 years but not exceeding 4 years |
40% |
Exceeding 4 years but not exceeding 5 years |
50% |
Now, let us understand with the help of an example:
Consider person A bought a new car worth Rs. 1 lakh. The car’s depreciation rate will be 5% for up to 6 months. Now, as soon as the car hits the road, its IDV will drop to Rs 95,000. If your car’s age exceeds 6 months but not 1 year, its IDV will be Rs 85000, and so on. Thus, as the car ages, the IDV of your car will keep on dropping as per the depreciation rates.
Zero Dep Car Insurance add-on is your solution to nullifying the impact of depreciation on your insurance and getting the full value of your car as the claim amount. If you secure your car with Zero Depreciation add-on in Car Insurance, the insurer won’t calculate the depreciation on your car’s parts, and hence you’ll receive a higher claim amount.
Therefore, with this add-on, you can have peace of mind as depreciation will not impact your policy in any way; the cost of depreciation of the car components will be borne by the insurance company and not you.
You can buy the add-on while purchasing an insurance policy for your new car or while renewing an existing car insurance policy.
NOTE: Most insurance companies offer the Zero Dep Car Insurance Add-on for new cars for the first five years. After this, the policyholder must bear the cost of depreciation. Please get it confirmed by your insurer before buying the policy.
Thus, there is a significant impact of depreciation in car insurance premiums, due to which you can be at a loss when filing for claims. If you don’t want to bear the costs of depreciated car components, go for the Zero Depreciation Car Insurance Add-on provided by your insurance company.