Explained: What is Zero Depreciation Car Insurance?

Vehicles are depreciating assets and lose their value over time.

Photograph: CarJasoos.com

Peace of mind is what everybody wants in every walk of life. If you own a car and face an unexpected accident, the insurance is your safety net that will cover the expenses due to damages. But the problem occurs when you don't get the expected claim money and instead you have to pay a part from your pocket. This naturally makes you think: What is the purpose of taking car insurance?

It generally occurs to people who take conventional comprehensive car insurance policy, where settlements are done after depreciating the car value. Here zero depreciation policy comes into the picture. Read to know everything about zero depreciation car insurance.

Depreciation: In financial terminology, depreciation is the lessening of the monetary value of a particular asset over time due to continuous usage and/or wear and tear. When depreciating a vehicle, its overall age is taken into consideration.

Zero depreciation: As the name suggests, a zero depreciation insurance is the zero amount of depreciation where there will be no deduction for the depreciation of an asset.

In zero depreciation car insurance, you will not be liable to pay the depreciation amount if any damage occurs to your car. In short, the insurance will cover the entire claim.

How do insurance companies determine zero depreciation car premium?

Various factors come into play while determining zero depreciation car premium. These factors are briefed as:

Place where the vehicle is registered. The cost of the premium may be higher in major cities such as Delhi, Mumbai, Kolkata, Pune, etc;
A higher capacity engine will attract more premium than lower capacity engines
Insured Declared Value (IDV), which is the present market value of the car;
Age of the vehicle;
Comprehensive car insurance will have a high premium as compared to third-party car insurance;
Car premium for accessories and additional features are separately calculated;
Fuel type, the premium would be different for diesel, petrol, electric and CNG cars.

Still don't get it? Let's see an example below:

Suppose your claim add up to Rs 30,000 while the total depreciating cost of the car is Rs 7,000. You don't have zero depreciation insurance but instead, have the comprehensive insurance policy. The insurance company will accept the claim but will only pay you back Rs 23,000. Additionally, you will have to pay the add-on expenses for the car repair.

But on the contrary, if you would have chosen the zero depreciation insurance, you would have got the entire claimed amount of Rs 30,000 without incurring an extra penny for the repairs.

The difference between comprehensive car insurance policy and zero depreciation insurance can be further understood from the following table.

Heads	Comprehensive policy with zero depreciation cover	Comprehensive policy without zero depreciation cover
Premium amount	Bit higher than the normal comprehensive policy	Lower than the policy with the Zero Dep add-on
Amount of Claim settlement	Higher as depreciation is not considered	Lower as depreciation is considered for all parts that need to be repaired
Repairing of parts	No depreciation is considered	50% depreciation is considered before paying the claim
Vehicle Age	Zero Dep coverage is done for a car that is less than 5 years old	Normal insurance coverage is done for a car that is up to 15 years old

How is depreciation calculated?

As per the Insurance Regulatory and Development Authority of India (IRDAI), these are the depreciation rates based on which the entire depreciation rate of a car is calculated:

Car parts	Percent of depreciation
Rubber, Nylon, and Plastic Parts, and Batteries	50 percent
Fibre Glass Components	30 percent
Wooden Parts	5 percent (first year), 10 percent (second year) and so on
Glass parts	Nil

Advantages of zero depreciation insurance

There are several benefits of opting for zero depreciation insurance. Here are some of the key advantages:

Saves money by reducing unnecessary pocket spending as it sanctions the entire claimed amount;
Opposed to the popular belief that zero depreciation is only effective when a mishap happens with amateur drivers, it even covers the most experienced drivers;
Adds more value to the basic car insurance coverage and investment is almost zero
It manages expenditures incurred because of the depreciation cost of the insured vehicle, as per the current market value;

Who needs zero depreciation car insurance the most?

This question naturally pops up. But we have got you covered. Let's see who benefits from zero depreciation car insurance the most:

Someone who has just bought a new car, as the value start depreciating when it breaches the 6-month mark;
For new drivers who think they would take time to adjust to the road conditions and might damage the car;
Someone who is residing in an accident-prone area;
Someone who owns a luxury car as components of these cars are very expensive and might create a hole in the pocket if not covered.

Who doesn't get the benefit of zero depreciation insurance coverage?

Some important factors need to be borne in mind before opting for zero depreciation coverage. In these cases one will not be able to avail the benefit:

Those who don't have a valid car driving license;
In case of normal wear or tear and mechanical failure or malfunction;
Those met with an accident in inebriated condition (drunk driving).
Cars which are more than five years old.

How to get zero depreciation car insurance?

The zero depreciation coverage can be purchased along with the comprehensive car insurance policy or as an add-on cover. It can be done online in a few clicks while one can also be customised as per your plan.

Conclusion

Car insurance is highly beneficial. It covers you financially from the impact of many unfortunate events. Fortunately, one can easily bypass depreciation and its effect on claims by opting for a zero depreciation add-on.

With this optional coverage, you can claim full compensation for vehicle part replacements. This assures high payouts and low out-of-pocket expenses in case of a claim.

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