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How Depreciation Impacts Your Car Insurance Policy?

What Factors Affect the Car Depreciation Rate?

How to Calculate Depreciation in Car Insurance?

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).

Rate of depreciation for all other parts including wooden parts will be as per the following schedule

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%

The Schedule of Depreciation for Fixing IDV of the Vehicle

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.

How to Reduce the Impact of Depreciation on Car Insurance?

FAQs about Impact of Depreciation in Car Insurance