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Zero depreciation also known as Nil depreciation or Bumper to Bumper car insurance is a car insurance policy that leaves out the depreciation factor from the coverage, thus giving you complete cover. It means that if your car gets damaged following a collision, no depreciation is subtracted from the coverage of wearing out of any body parts of car excluding tyres and batteries. The insurance company will pay out the entire cost of the body part for replacement.
Zero depreciation car insurance policy offers 100% coverage for all fibre, rubber and metal parts without deduction of depreciation. It does not cover engine damage due to water ingression or oil leakage. Any mechanical breakdown, oil change or consumables are also not covered in this policy. The policy comes with a limit on the number of claims you can put in a year.
Zero depreciation costs anywhere between 15-20% of the standard premium and is a MUST BUY for all new or relatively new (up to 5 years) cars.
Zero depreciation car insurance proves to be beneficial to:
Contrary to the popular belief that Zero Depreciation for car insurance is effective only for amateur drivers, it is essential for protecting even experienced drivers from the financial burden of damages and losses incurred due to accidents.
Enhances the coverage of the basic car insurance, reducing your expenses to almost zero.
Controls expenses incurred as a result of depreciation cost of the insured car, as per the prevailing market value.
Expenses incurred due to repair or replacement of insured parts are settled without taking into consideration the depreciation value.
Depreciation is quite simply the decrease in value of things or 'assets', as they get older. For example, a newer car is obviously priced higher than an older one. Similarly, there is a certain depreciation associated with all the materials like glass, plastic, metal that make up your car.
Each of the materials or parts has a different rate of depreciation. Here's a quick video explaining how this works:
If you check the fine print of a comprehensive plan, you would know that the depreciation deducted on many items amounts to quite a lot.
For example, the Insurance Regulatory and Development Authority of India (IRDA) has ordained that:
In case you make a claim, with a basic car insurance policy, the insurer only reimburses the depreciated value of car parts replaced.
This is irrespective of the actual cost. If your car is brand new, this can turn out to be really expensive!
To understand how to remedy this with a solution, here is a quick recap of what zero depreciation does for you during claim settlement:
Here are the factors you need to keep in mind while opting for a zero depreciation car insurance:
The car that you want to insure should not be more than 3 years of age to be eligible for zero depreciation car insurance add-on cover.
Only the depreciated value of the car parts are replaced on basic zero depreciation car insurance plans.
Zero depreciation car insurance offers a higher coverage than a basic car insurance plan, and therefore, attracts a higher premium. Therefore, you can consider zero depreciation car insurance only when you would be able to pay a higher premium amount.
Zero depreciation car insurance add-on is especially recommended for owners of luxury cars or car owners who are residents of high-risk locations.
Claims on zero depreciation car insurance can be made in certain specific cases to limit the number of claims for minor issues like dents in the car.
50% depreciation is deductible on car batteries and parts of the car that are made of plastic, rubber and nylon, and 30% depreciation is deductible
The deductible amount for depreciation on wooden car parts is determined by the age of car. The usual depreciation value is 5% in the 1st year, 10% in the 2nd year and so on.
Let's weigh the odds.
| 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 | A Little High | Less |
| Cost of Repairing and Plastic Fiber | Insurance Company Bears The Maximum Amount | Policy Holder Has To Pay More From Pocket |
| Age of the Car | Usually Covers New Car up to 5 years.* | It can be taken for a car less than 15 years. ** |
This depends from insurer to insurer. Some insurers do offer zero dep cover for cars more than 5 years. But offline.
After 15 years, the car would have to be re-registered.
Let's run through this with a quick example. Say, your car is worth Rs. 10,00,000. Then the tentative cost of damage to the parts and its depreciation would look something like this:
| PARTS | COST OF DAMAGE (IN RS.) | COST OF DEPRECIATION (IN RS.) | [WITH ZERO DEP] AMOUNT (IN RS.) |
|---|---|---|---|
| Metal Part | 9,000 | 450 | 0.05 |
| Plastic Part | 12,000 | 6,000 | 0.5 |
| Fibreglass Parts | 3,000 | 900 | 0.3 |
| Windscreen | 2,000 | 0 | 0 |
| Labour | 4,000 | 0 | 0 |
| Total | 30,000 | 7,350 |
For such a scenario, with a normal standard policy, you'd have to pay Rs. 7,350 approximately. However, when zero depreciation comes into the picture:
| 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 |
| Your 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!
Ideally, Zero depreciation car insurance cover is for people with brand new cars (or even relatively brand new would do), but specifically:
Now that you fully understand the benefits of a zero depreciation add on, why not go ahead and buy it.
Is zero depreciation cover different from the standard cover? How?
The biggest difference is that a zero depreciation cover promises full settlement coverage. On the other hand, a standard comprehensive cover tends to estimate the coverage based on the 'current value' of your vehicle. The current market price of your car plays an important role in the depreciation of the vehicle.
If at all you have wrecked your car in an accident, your standard policy will pay for the repair expenses after subtracting for depreciation. However, in a zero depreciation policy, your insurer pays without adding depreciation charges.
I heard that zero depreciation cover is more applicable to new cars. Is it true?
Usually, only new cars can avail the zero depreciation add-on. Insurance companies define a specific age limit when it comes to zero depreciation. In case your car happens to be older than the particular limit specified by them, then you won't be eligible to use the zero depreciation add-on cover for your car.
Is there any restriction on the number of claims? How does a Zero dep insurance policy affect claim settlement?
Adding a zero depreciation cover is no doubt very beneficial for a new car. But, remember that it may limit the number of claims you can make annually. A reason for this is because generally, your car is depreciated once a year. It means without the zero-depreciation add-on cover, your insurer would consider depreciation. But as a new driver, don't keep wrecking your car and make claims. It would leave your insurance provider in a fix about paying your expenses time and again regardless of depreciation. Hence, the limit! Again, this clause may vary from one insurance company to another. So, you need to speak to your insurer about this before buying the policy.
How do I understand if the zero depreciation add-on cover is ideal for me?
By now you would be aware that the zero depreciation add-on cover is recommended to all brand new cars. Apart from that, a Zero depreciation cover is also essential for:
Can I get Zero depreciation car insurance after 5 years?
Taking into consideration the higher depreciation during the later years, insurance companies normally limit zero depreciation insurance beyond 5 years. Irrespective of this, you should have a word with the insurance company, if they can allow it as an exception for renewal after 5th year based on no claims made before or on the basis of your customer loyalty.
