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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:
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!
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Here are the factors you need to keep in mind while opting for a zero depreciation car insurance:
| 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 | 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.
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!
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:
| TENORS | 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 | 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:
| 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 | 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!
After a lot of statistical research and data crunching, your zero depreciation car insurance premium depends on 3 main factors:
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.
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.
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.
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.
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.
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.
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:
Disclaimer - Above mentioned prices are for a 2 years old Maruti Wagon R, 1.2 VXI AMT OPT (1197 CC) registered in Mumbai & previous policy has expired.
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