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Zero Depreciation

What is Zero Depreciation and why is it so important?

Zero depreciation or Nil Depreciation or Bumper-to-Bumper Cover, is the magic add-on that 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.

It basically does not take into account the depreciation on car parts and 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.

Don’t understand? Let’s explain this in detail.

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Zero Depreciation
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:

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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!

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What role does depreciation play when you make a claim?

In case you make a claim, with a basic car insurance policy, the insurance company only reimburses the depreciated value of car parts replaced, 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:

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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:

Parts Cost of Damage (in Rs.) Cost of Depreciation (in Rs.) % Depreciation
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!

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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 you’re based in
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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
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Now that you fully understand the benefits of the zero depreciation add on, why not go ahead and buy it?
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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— i.e a plan that does not offer zero depreciation – 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 only after subtracting for depreciation. However, in a policy that has the zero depreciation cover, your insurance company will have to foot the bill 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?

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 if you never had the zero-depreciation add-on cover, your insurance provider would take into account the depreciation on car parts and you would have to spend a huge sum from your pocket.

But as a new driver, if you keep wrecking your car and keep making 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 do know that if an accident occurs and depreciation of such parts are going to be considered, you would end up spending more than required and get into a huge loss