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What is Zero Depreciation Car Insurance, It's Coverage & How it Works?

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If you’re worried about spending a large part of your savings on car repairs after an accident, Zero Depreciation Car Insurance policy is your solution. This car insurance add-on offers peace of mind to you by removing depreciation costs during claim settlements.

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What is Zero Depreciation Car Insurance?

Zero Depreciation add-on cover, also known as bumper-to-bumper or nil depreciation cover in a comprehensive car insurance policy ensures that the insurer does not deduct the depreciation amount on the assessed car parts as per the policy document. 

The benefits under the zero dep add-on can be utilized up to a maximum of specified number of times during the policy period. 

Thus, if you have zero depreciation add-on cover, you can claim the total cost of replacement of damaged car parts in case of an accident and save a huge amount.

What is Depreciation?

Depreciation in car insurance is the decrease in the market value of your car over time due to its natural wear and tear. Thus, the older your car is, the higher is its depreciation. 

It's a factor that comes into play when you make a claim for damage to your car under a comprehensive car insurance policy.

You can calculate depreciation on your car in 2 ways:

  • If you’ve a new car, its value starts to depreciate as soon as it hits the road. This is known as overall depreciation, which is generally used for calculation in case of total loss or theft. 

  • In case of partial loss or damage to your car, the depreciation of specific car parts is calculated separately.

Depreciation in Car Insurance Explained

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Why Should You Get Zero Depreciation Add-on with your Car Insurance?

Save Money

Standard car insurance policy deducts depreciation amount, thus, leaving you with a lower payout than the actual repair costs. So, having a Zero Depreciation add-on reduces your out-of-pocket expenses to almost zero during the claim, ensuring you receive the full Insured Declared Value (IDV) for repairs or replacements. This is because without a Zero Dep add-on the cost of depreciation of the parts must be borne by you. But with a Zero Dep addon, that is taken care of by your insurance company.

Higher Claim Amount

Securing your car with a zero-depreciation add-on means you get protection from financial loss and compensation for the full repair or replacement amount, as depreciation on your car’s parts won’t be calculated. Thus, you’ll receive a higher amount during claim settlement.

Affordable

You can opt for the Zero Depreciation Car Insurance Add-on Cover along with your standard Comprehensive or Own Damage car insurance policy by paying an additional premium, which is generally low and affordable. This way you can protect your car and your pocket at an affordable cost.

Peace of Mind

Accidents are financially and mentally draining, and worrying about covering repair costs shouldn't add to the burden. So, opting for a zero depreciation addon assures you that you are financially protected in case of an accident, which can be so satisfying and really gives you some peace of mind.

How is Depreciation Calculated in Car Insurance?

According to the Insurance Regulatory and Development Authority of India (IRDAI), following are the depreciation rates, on the basis of which the total depreciation of your car is calculated:

Depreciation Rates for Different Parts in Vehicles

Vehicle Parts 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) 

Depreciation Rates for Metallic Parts in Vehicles

Age of Vehicle Rate of Depreciation
Less Than 6 Months  Nil 
More Than 6 Months to 1 Year  5% 
More Than 1 Year to 2 Years  10% 
More Than 2 Years to 3 Years  15% 
More Than 3 Years to 4 Years  25% 
More Than 4 Years to 5 Years  35% 
Exceeding 5 years but not exceeding 10 years  40% 
More Than 10 Years  50% 

Depreciation Rates for All Other Parts in Vehicles

Age of Vehicle % of Depreciation
Below 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% 
More than 10 years  50% 

Depreciation Rate for Fixing IDV of 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% 

What is Not Covered Under Zero Depreciation Add-on Cover?

Under Zero Depreciation add-on cover, certain things in addition to the general exclusions listed under car insurance are not covered. Let us look at them in detail:

Invalid insurance policy

The claim will not be entertained if the car insurance policy has expired.

Damage can’t be inspected

In case, the damage caused to the vehicle can’t be inspected before it is repaired, the insurer is not liable to entertain the claim.

Loss covered under different policy

Loss claimed for damage caused to the covered vehicle under different types of insurance policy will not be covered by Digit.

Zero Dep Add-on not included under ‘Own Damage’ section

A claim will not be payable under Zero Depreciation add-on if it is not covered under OD section of the policy.

Claim registered after 30 days of the loss/damage

The add-on cover will not entertain any claim if there is a delay of more than 30 days since the damage was caused.

Depreciation on specific parts

The insurer will not cover depreciation amount applicable to parts like battery and tyres of the insured vehicle as per the policy.

Repair cost not approved under the policy

The cost incurred by the policyholder to repair any part, subpart or accessory in the vehicle which is not approved under the car insurance policy can’t be claimed for.

Factors Affecting Zero Depreciation Car Insurance Premium

Following are the factors that will affect the premium of your zero depreciation addon cover:

Age of your car

Since a zero depreciation addon is directly related to the aging of your car and its parts, the age of your car plays a huge factor in determining the premium for your zero depreciation addon cover. 

Model of your car

In a car insurance, a lot depends on the model and type of your car. Since the cost of its parts too will depend on it. Therefore, the kind of car you have also plays a huge factor in determining the cost of your zero depreciation addon cover.

Location of your car

Every city faces different risks when it comes to driving on the roads. Therefore, in a car insurance, your premium- including the additional premium of your zero-depreciation cover will be dependent on the city you drive your car in.

Fuel-type and engine of your car

Premium is subject to change if your car is a diesel, petrol, CNG, or electric type. Further, the zero-depreciation premium is comparatively higher for cars with an engine of higher cubic capacity than those with lower cubic capacity.

Why is a Comprehensive Policy with Zero Depreciation Add-on Better than a Policy Without Zero Depreciation?

A comprehensive policy is no doubt a great way to protect your car from all possible damage. However, during claims you will still be required to pay for your car’s part depreciation.

Let’s understand the difference between Comprehensive Policy with and without Zero Depreciation Add-on cover:

Parameters Comprehensive Policy WITH Zero Depreciation Cover Comprehensive Policy WITHOUT Zero Depreciation Cover
What is it?  A zero-depreciation cover is an optional add-on you can opt for in your car insurance policy.

Having this add-on ensures your insurer won’t charge for your car’s depreciation during claims and hence, you won’t be liable to pay for the cost of depreciation of your car’s parts during claims.		 Comprehensive car insurance is a type of motor insurance policy that covers your car’s own damages and third-party damages.

This type of policy can further be customized for extensive coverage.
Premium  On opting for this add-on cover, your comprehensive car insurance premium will increase by approximately 15%.  The premium for a standalone comprehensive car insurance policy is lower than that of a comprehensive car insurance policy with zero dep add-on. 
Cost of Depreciation  Having a zero depreciation addon means you don’t need to pay for the cost of depreciation during your car insurance claims.  In a comprehensive car insurance policy, you will be required to pay for the cost of depreciation of your car’s parts during car insurance claims. 
How much do you save?  While you pay a slightly higher premium, your long-term savings are high as you aren’t required to pay for your car’s depreciation costs during claims.  The only saving you have is the extra premium you would save on by not opting for addons. 
Cost of Damage  Your car insurance company is responsible for paying the depreciated cost of car parts.  You are responsible for paying the depreciated cost of car parts. 
Depreciation Consideration  Depreciation of certain car parts is NOT considered at the time of claims.  You need to pay a fixed rate of depreciation on different car parts while filing claims. 

Role of a Zero Depreciation Cover During Claim Settlement

The main role of a zero-depreciation cover during claims is to save the money you’d be spending from your pocket. 

Let’s take an example to make this simple for you.

If your total claim amount payable is ₹20,000 and the total cost of your car part’s depreciation is ₹6,000, then without having a zero-depreciation cover- your insurer will account for this cost and only pay you ₹14,000. However, if you have zero depreciation cover, then, you will receive the entire ₹20,000 as your claim amount! 😊

Things to Remember about Zero Depreciation Insurance

  • Zero Depreciation add on cover policy will not be valid once you have claimed for the specified number of times as mentioned in the policy document. 

  • A Zero Depreciation only covers the cost of your car’s part depreciation during claims and doesn’t cover your compulsory deductibles.

  • Claims made by the insured under this add-on are subject to the terms and conditions of your Car Policy.

Who Should Opt for a Zero Depreciation Cover?

If you plan to buy a new car soon, you should opt for a zero-depreciation cover in your comprehensive car insurance policy. You’re already spending a whole lot of money for your new car, spending a little more on its insurance with the right add-ons will help to prevent you from spending any more money.

So, if you are in any of the following categories, you should buy a Zero Depreciation Cover.

  • If you live or drive frequently in an accident-prone area. 

  • If you have recently learned to drive a car.  

  • If you cannot bear the sight of small dents and bumps on your car.

  • If you own a luxury car or have expensive spare parts. 

  • If you wish to reduce your out-of-pocket expenses in case of any damage.

 

Note: Zero Depreciation add-on cover has been filed as Digit Private Car Parts Depreciation Protect with Insurance Regulatory and Development Authority (IRDA) with UIN number IRDAN158RP0005V01201718/A0009V01201718. 

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