Does a Zero Depreciation motor insurance policy make a difference during claims?

Did you know that the second a brand-new car or bike is driven out of the showroom, its value is considered to have reduced by 5%? This is because of something called depreciation, or the decrease in the cost of your vehicle, and its parts, due to factors like age. This depreciation is an amount that is subtracted from any claim that you make with your insurer.

But, it doesn’t have to be that way! If you’ve opted for a zero depreciation insurance, your vehicle won’t be subjected to this depreciation during motor insurance claims, meaning that you’ll end up getting more money. Does this sound like something you’d want too? If so, read on and find out how you can make the most of your insurance policy with this benefit. 😊

What is Depreciation?

When you are talking about depreciation in motor insurance, it basically refers to the reduction in the value of your vehicle and its parts over time. This is mostly due to wear and tear, and the age of your vehicle (much like how you also gain some wear and tear as you grow older! 😆) Basically, the older your vehicle is, the higher its depreciation will be.

There are two main types of depreciation – the depreciation of the vehicle itself, and the depreciation of its various parts and accessories.

When there is “partial loss”, such as if your vehicle has had some minor damage in an accident, then the depreciation of the parts will be considered. However, if there is a “total loss” like in the case of a theft, then the depreciation of the vehicle comes into play.

In either case, when you file a claim, your insurer will usually deduct this depreciation amount before they make any payment.

The IRDAI has set rules for how the depreciation of vehicle parts should be calculated:

Vehicle parts	Depreciation
Parts with high wear and tear - rubber parts, plastic components, battery, tubes and tires, etc.	50%
Fiberglass parts	30%
Metallic and other parts	0% to 50%, based on the age of the vehicle

The depreciation of the full vehicle is based on its age of your vehicle:

Age of Vehicle	Depreciation
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%

So, what is a Zero Depreciation policy?

To put it simply, Zero Depreciation (which is also known as Nil Depreciation) is a comprehensive motor insurance policy which has a zero depreciation add-on cover included. It is one of many add-on covers you can choose when you opt for a Comprehensive or Own Damage policy.

Depreciation is connected to your vehicle’s Insured Declared Value (or IDV) which is the maximum amount which your insurance company will give you when there is a “total loss” of your vehicle. It is calculated by subtracting your depreciation from the vehicle’s listed price. So, IDV = (Manufacturer’s listed price – Depreciation).

If you’re wondering why you need to know this, that’s because, with a Zero Depreciation cover, you get complete coverage against depreciation, meaning that

This is very important when it comes to the claim settlement amount for your vehicle’s repairs or replacement.

How will a Zero Depreciation Cover make a difference during Claim Settlement?

If you have this cover, this means that no depreciation will be subtracted before you receive any claim amount from your insurer. So, let us say that the total cost of damage to your vehicle was ₹10,000. But your vehicle’s part depreciation is ₹2,000, then without this cover, you would only receive ₹8,000 from your insurer. But WITH it, you will receive the full amount!

There is also no restriction to the number of claims you can make under your zero-depreciation insurance policy, as long as the total amount doesn’t exceed your IDV (or the maximum amount your insurance company will pay you in case of loss or total damage to your vehicle).

Will it affect your premium?

Like most other add-ons, when you opt for a Zero Depreciation Cover with your comprehensive or own damage policy, you will have to pay a slightly higher premium. However, this is just 10 -20% more than what you would have to pay for a standard comprehensive motor insurance premium. You can find out exactly how much it will be for you with a car insurance premium calculator.

This increased percentage depends on the vehicle’s IDV, age of your vehicle, what make and model it is, and also on your location. But when you factor in the amount you will save during claims, this is completely worth it.

What’s the difference between a policy without Zero Depreciation and one that has it?

Apart from the change to your premium, you might be wondering how a Zero Deprecation policy is actually different from a regular standard comprehensive motor insurance policy (or one that covers for both any damages to your own vehicle and third-party damages). Here is how the two are different when it comes to claims:

	Zero Depreciation	Zero Depreciation
Premium	Your comprehensive motor insurance premium will increase by about 15%.	The premium for this policy is lower as there are no add-ons
Claim settlement	Full coverage (you won’t be charged for your vehicle’s depreciation)	Your coverage will be based on the current value of your vehicle, minus the cost of depreciation
Your savings	Despite the slightly higher premium, you will have more long-term savings	Your main savings will only be on the extra premium

Let’s look at an example. If your Hyundai i20 Asta (1197 cc), (registered in Bangalore in 2018) suffered minor damages in an accident, you might get a bill like this:

Metal Parts	₹ 15,000
Plastic Parts	₹ 7,000
Fibreglass Parts	₹ 8,000
Total	₹ 30,000

How would you end up paying when you make a claim? You can see how it all works here:

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So, while a standalone comprehensive policy will still do a good job in protecting your beloved vehicle against all kinds of damages, when you need to make a claim, you might have a problem. With a zero depreciation add on cover in addition to this policy, you’ll get the same excellent coverage, as well as a number of added benefits.

What are the benefits of having a Zero Depreciation Cover?

It’s pretty evident so far that there are many benefits to opting for a zero depreciation cover, despite the extra initial cost. Most of these benefits can be seen during claims, like:

Being able to save money – with a Zero Depreciation Addon, you don’t unnecessarily spend from your pocket during claims, as the cost of depreciation is covered by your insurance company.
You’ll get a higher claim amount – since the depreciation on your vehicle’s parts won’t be subtracted from the amount, you’ll be sure to receive more whenever you need to make a claim.

What’s not covered by Zero Depreciation?

Okay, now that you know all the good parts about getting this add-on for all seasons, you might be wondering what all won’t be covered.

Cars that are over 5 years old – a zero depreciation add on is only available for cars that are less than 5 years old
Mechanical breakdowns – this add-on won’t cover you for mechanical breakdowns and regular wear and tear of the vehicle

Compulsory deductibles – even if you have a zero depreciation cover, you will still need to pay the compulsory deductibles set by your insurance company. This is an amount you need to pay your insurer before you can submit a claim
Not following traffic rules – if you disobey traffic rules by doing things like driving under the influence, or driving without a license, you won’t be able to benefit from your zero depreciation cover during claims.