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CAR INSURANCE

How Zero Depreciation Car Insurance Affects Claim Settlement?

Neha Gadoo Neha Gadoo 18 October 2016

Zero Depreciation car insurance saves you from spending a lot of money from your pocket in case of an accident, which you may have had to pay for replacing parts of your car.

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With zero depreciation add-on, while filing a claim due to loss/damage to your car, your insurance company will cover the cost without considering your car’s depreciation. For vehicle owners who prefer smooth claim settlement (well, everyone does), zero deprecation is an attractive prospect. Moreover, for recently bought vehicle it is worthwhile.

Zero Depreciation? What’s that?

For instance, if your car suffers damage in a mishap; having a zero depreciation add-on will not take into account the depreciation on car parts. It saves you from spending a lot of money from your pocket in case of an accident, which you may have had to pay for replacing parts of your car.

Zero Depreciation– Why is it better than a normal cover?

Parameter Zero Dep Cover Normal Cover
Claim Settlement Offers settlement coverage without considering the depreciation value Claim amount is based on the current value of the vehicle, which factors in depreciation.
Premium Relatively High Low
Cost of Repairing and Plastic Fiber Insurance Company Bears The Maximum Amount Policy Holder Has To Pay From Pocket
Age of the Car Usually Covers New Car It can be taken for a car which is more than 3 years old

Claim Settlement

In a Zero Depreciation cover, you get bumper to bumper cover. Depreciation of spare parts will not affect you. Moreover, zero depreciation also covers plastic, glass, fiber, Nylon etc. which are not covered under the normal car cover. Zero dep is only applicable for cars that are less than 5 years old (depends on the insurance provider and the car). Once this period is over, this cover won’t be applicable.

How Much Do you Pay from your pocket in case of claim?

Let’s go through this quick example. If the worth of your car is Rs. 10,00,000. Tentatively, the cost of the damage to the parts and its depreciated value will be:

Parts Cost of Damage (Rs.) Cost of Depreciation (Rs.) % Depreciation
Metal Parts 9,000 450 0.05
Plastic Parts 12,000 6,000 0.5
Fiberglass Parts 3,000 900 0.3
Windscreen 2,000 0 0
Labor 4,000 0 0
Total 30,000 7,350

With a standard policy, you’ll have to pay Rs. 7,350 approximately.

In case of zero depreciation:

Cost of Premium and Claim [Without Zero Dep] Amount (in Rs.) [With Zero Dep] Amount (in Rs.)
Basic Premium (A) 15,000 15,000
Zero Dep Add-On (B) 0 3,000
Total Cost of Policy (C) A+B 15,000 18,000
Deductible Applied Per Claim (D) 2,000 2,000
Cost of Repair (E) 30,000 30,000
What You Need To Pay (F) 7,350 0
Total Expenses in the Year (G) 24,350 20,000
You Save (E-G) 5,650 10,000

Thus, even if you have more than one claim in a year, you will definitely save a lot on account of the zero depreciation add-on!

What is not covered?

  • There are few conditions which are not covered under the zero depreciation policy.
  • Wear and tear
  • Damage to uninsured items like accessories and bi-fuel/gas kit, tires
  • Damage due to uninsured peril
  • Damage due to mechanical breakdown

With Zero Depreciation cover, the insurance premium that you pay will be slightly high. In a normal car insurance policy, the premium you pay will be lower in comparison to a policy with Zero Depreciation cover included but the advantages that you get with zero depreciation is worth the premium.

Cost of repairs

If you have opted for Zero Depreciation cover, if your car needs repairs, the costs are managed by the insurance company. In a normal Car Insurance policy, you have to bear all the cost. A Zero Depreciation cover is offered to policyholders who have new cars.

Zero Depreciation Cover: Things That You Need to Know

Compulsory Excess

In most of the cases the coverage is not 100%. Mechanical breakdown and normal wear and tear are not covered under zero-depreciation. There is a mandatory amount that a customer has to pay even if covered under a zero-dep policy. For instance, a private vehicle 1500cc will have a mandatory deduction of Rs. 2000.

Only Admissible Claims are Payable

Uninsured items like accessories and bi-fuel/gas kit and tires are also not covered.

Restriction on Number of Claims

A zero depreciation cover limits the number of claims that you can make in a year. For instance, certain insurance companies may restrict the number of claims to only two for each policy period.

Does Not Include Engine protection

A normal zero depreciation car insurance will not cover this. Engine Protector protects the vehicle from losses caused by damages. This could be caused due to hydrostatic lock that is when engine gets seized due to water ingression or stalling of the engine due to engine oil leakage, or due to substantial losses caused by leakage of lubricating oil or gear box damage.

Available Only for New Cars

The zero depreciation rider applies only to new cars, with the age limit being five years. If your vehicle is older, it is not eligible for this benefit.

So now that you know how zero depreciation add-on affects your claims amount, will you insure your car with this policy? If you are stuck with any questions, you can always call a Coverfox advisor. :)

Neha Gadoo
Written by Neha Gadoo
Daring and Bold, Neha loves philosophy, trekking and walking bare feet in the rain. Loves talking and can stare out of a car window for hours continuously.