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Zero Depreciation Car Insurance

What is Zero Depreciation and why is it so important?

Zero depreciation Cover is an add-on that doesn't consider depreciation on car parts. It's also known as Bumper-to-Bumper Cover or Nil Depreciation.

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

It 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.

But First, 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. Here’s a quick video explaining how this works:

Did you know?

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!

The Role of Zero-Depreciation 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!

To understand how to remedy this with a solution, here is a quick recap of what zero depreciation does for you during claim settlement:

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

Let’s weigh the odds.

PARAMETERZERO DEP COVERNORMAL COVER
Claim SettlementOffers settlement coverage without considering the depreciation value.Claim amount is based on the current value of the vehicle, which factors in depreciation.
PremiumA Little HighLess
Cost of Repairing and Plastic FiberInsurance Company Bears The Maximum AmountPolicy Holder Has To Pay More From Pocket
Age of the CarUsually 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.

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:

PartsCost of Damage (in Rs.)Cost of Depreciation (in Rs.)% Depreciation
Metal Part9,0004500.05
Plastic Part12,0006,0000.5
Fibreglass Parts3,0009000.3
Windscreen2,00000
Labour4,00000
Total30,0007,350

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!

What factors affect the zero depreciation premium?

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

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

Who should buy Zero Depreciation?

Ideally, 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 the zero depreciation add on, why not go ahead and buy it?
FAQs on Zero Depreciation

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, 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 wrecked your car in 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 add-on cover for your car.

Is there any restriction on the number of claims? How does Zero dep 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, it 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

Zero Depreciation