July 22, 2021

Zero depreciation or nil depreciation car insurance policy provides comprehensive coverage for your car against damages caused due to an accident without considering the depreciation factor. Thus, in case of accidental damage to your car, no depreciation is deducted from the coverage of any body parts of the car excluding tyre and batteries. Zero depreciation is an add-on cover that enhances the policy coverage for your car. You need to pay a little extra premium, but you will be able to avail of the better payback at the time of claims.

Depreciation refers to a reduction in the value of an asset, as it gets older. With each passing day, your vehicle is exposed to wear and tear which leads to depreciation. As a result, a new car is priced higher than an old car. Each of the body parts has a different rate of depreciation associated with it.

How Zero Depreciation is Beneficial?

Let’s understand the impact of depreciation on claims with an example of 3-year old Honda City when your car gets damaged due to an accident.

Parts Damaged Cost of Damage (in Rs) Depreciation Applicable (in Rs)
Metal Part 10,000 2,500 (25% of damage cost)
Plastic Part 12,000 6,000 (50% of damage cost)
Fiberglass Parts 4,000 1,200 (30% of damage cost)
Labor 3,000 0
Total 29,000 9,700

Under this scenario, with a standard car insurance policy, you will have to pay Rs 9,700.

Now, let’s check how zero depreciation cover insurance policy will benefit you during claims.

Cost Incurred Standard Car Insurance (without zero depreciation) Zero Depreciation Insurance
Basic Premium (I) 14,000 14,000
Zero Depreciation Add-on (II) 0 3,000
Cost of Policy (III= I+II) 14,000 17,000
Deductible per claim (IV) 1,000 1,000
Cost of Repair (V) 29,000 29,000
What you will pay (VI) 9,700 0
Your total expenses during a year (VII= III+IV+VI) 24,700 18,000
Your savings (V-VII) 4,300 11,000

Here, you can infer that you can save an additional amount of Rs 6,700 (Rs 11000-4300) by simply attaching zero depreciation insurance with a standard car insurance policy.

Who should buy?

Buying a zero depreciation car insurance policy in India proves to be beneficial to:

  • People owning brand new cars
  • Owning luxury cars
  • Driving in areas with huge on-road traffic
  • New/Inexperienced drivers
  • Car with expensive spare parts

Factors to consider before buying Zero Depreciation Policy

Cost: The cost of a zero depreciation car insurance policy comes with an additional cost. In the event of a claim, the insurer will then pay the entire claim amount without considering depreciation against any body parts of your car.

The number of claims: The insurers specify the number of times, you can file claims during a policy year. And thus, you must check the number of claims your insurer is allowing for and choose a zero depreciation car insurance policy that permits you to make several claims during a year.

Age of the car: The zero depreciation car insurance policy is available for new cars up to 5 years of age and you should consider this aspect before buying the cover.

Exclusions in Zero Depreciation Policy

There are scenarios that are excluded under this policy, so read it carefully before opting for a zero depreciation policy.

  • Cars that are more than 5 years old
  • Damage to car engine through oil leakage or water ingression
  • Standard wear and tear
  • Mechanical breakdowns and consequential damages
  • Compulsory deductibles
  • Private car being used for commercial purposes
  • Driver not carrying a valid driving license
  • Driver is under the influence of drugs or alcohol, etc.

Concluding Words

Choosing zero depreciation insurance policy for your car is worthwhile. You are however advised to read through the benefits & exclusions applicable and also assess the benefits against the cost, so you can ascertain whether you want to buy this add-on product.

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