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Zero Depreciation

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:

  • People with new cars
  • People with luxury cars
  • New / Inexperienced drivers
  • People living in accident-prone areas
  • If you worry about small bumps and dents
  • If you have a car with expensive spare parts

What is Depreciation?

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.

A brand new car, once has been bought and taken out of the showroom is no more of the same value as it was inside the showroom! It's lesser!

Benefits of Zero Depreciation Car Insurance Cover

  • 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.

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Factors to Consider Before Opting for Zero Depreciation Car Insurance Cover

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.

Add-ons For Your Car Insurance

Choose The Right IDV
This add-on is for the times when the monsoons are at their destructive worst, and leave your car's engine vulnerable to flooding.
Avail No Claim Bonus
This add-on provides a discounted premium on your no-claim bonus year-on-year, even after claiming during the policy period.
Install security devices
As the name suggests, this cover provides financial protection against the loss of car keys; the cost of making duplicate car keys.
Become AAI Member
This add-on helps you recover as much as the car's on-road price or Insured Declared Value in total loss (such as theft or a terrible accident).

Why Zero Depreciation is Better than a 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 High Low
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.

The Role of Zero-Depreciation Car Insurance during Claim Settlement

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:

  • On rubber, nylon, and plastic parts, and batteries – 50% depreciation be deducted,
  • On fiber glass components – 30% depreciation be deducted, and
  • On wooden parts – depreciation be deducted as per the age of car (such as 5% in the first year, 10% in the second year, and so on.)

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!

How Much do You Pay from Your Pocket in Case of Claim?

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:

Metal Part 9,000 450 0.05
Plastic Part 12,000 6,000 0.5
Fibreglass Parts 3,000 900 0.3
Windscreen 2000 0 0
Labour 4,000 0 0
Total 30000+ 7350

Disclaimer: The above cost is just an assumed figure and the actual cost will vary as per the extent of damage caused by the accident and the depreciation factor applied by the insurance company. The depreciation factor varies from insurer to insurer.

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:

Basic Premium (A) 15,000 15,000
Zero Dep Add-on (B) 0 3000
Total Cost of Policy (C) A + B 15000 18000
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 20000
You save (E-G) 5,650 10,000

Disclaimer: The above cost is just an assumed figure and the actual cost will vary as per the extent of damage caused by the accident and the depreciation factor applied by the insurance company. The depreciation factor varies from insurer to insurer.

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 Factors Affect the Zero Depreciation Car Insurance Premium?

After a lot of statistical research and data crunching, your zero depreciation car insurance premium depends on 3 main factors:

  • Age of the car
  • The model of the car
  • The location in which you are based

Who should Buy Zero Depreciation Cover?

Ideally, Zero depreciation car insurance cover is for people with brand new cars (or even relatively brand new would do), but specifically:

  • People with luxury cars
  • New drivers
  • People living in accident-prone areas
  • If you worry about small bumps and dents
  • If you have a car with expensive spare parts
  • Now that you fully understand the benefits of a zero depreciation add on, why not go ahead and buy it.

Frequently Asked Questions

  • Q. What is Zero Dep Insurance?
    • Zero dep insurance cover, also known as Zero Dep policy, is a type of insurance cover which offers complete coverage without factoring in depreciation value of the vehicle. This means that if your car gets damaged in an accident, you will receive the entire cost from the insurer.

  • Q. 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.

  • Q. 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.

  • Q. 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.

  • Q. Can I get Zero depreciation car insurance after 5 years India?
    • 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.

  • Q. 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:

      • Those who own luxury vehicles as the parts of such cars are very expensive. Obviously depreciation on such parts too would be more.
      • New drivers who aren't confident of their driving skills should opt for this cover.
      • Those who are accustomed to living in accident prone areas where there are high chances of them wrecking their vehicles.
      • If you are super-conscious about small bumps and dents of your car, you should definitely opt for this cover.
      • In case your car is fitted with expensive spare parts, you'd spend a bomb on depreciation of such parts. It's only going to put you into a huge loss
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