Zero Depreciation Car Insurance

Before we get into zero depreciation, let’s first understand what depreciation is in car insurance.

Depreciation in car insurance refers to the decrease in the value of your car over time. Standard car insurance policies take depreciation into account when settling claims.

Insured Declared Value (IDV) represents the maximum amount that an insurance company will compensate you in case of total loss or theft of your vehicle. The IDV serves as the basis for determining the premium of your car insurance policy and plays an important role in claim settlements. IDV takes depreciation into account when determining the maximum compensation you can receive in case of total loss or theft of your car.

It is determined using the following formula:

IDV = (Manufacturer's Listed Selling Price - Depreciation) + (Cost of Vehicle Accessories - Depreciation)

The depreciated amount of the car will not be covered by the insurance company, and this has to be borne by the policyholder. As declared by the IRDAI, said depreciation rates are as follows -

For all other parts, including wooden parts, depreciation rates are as follows -

The depreciation rate of the car itself is as follows -

Now that we’ve understood the meaning of depreciation, let’s see how we can work around this with zero dep insurance.

Zero Dep Car Insurance Cover, or Nil Depreciation or Bumper-to-Bumper Insurance, is like a protective shield for your car's value. Unlike regular car insurance, which considers depreciation when settling claims, Zero Dep Car Insurance covers the full cost of repairing or replacing damaged car parts without factoring in depreciation. This means you won't have to bear the financial burden of the depreciation value when making a claim. 

Here is an example that demonstrates how much an individual can save under a nil depreciation car insurance - 

Assume the car is 1.5 years old.

*Note: The values above are all assumed costs and are not based on any actual values.

**Note: The mandatory deductible for private cars with engine capacity below 1500cc is Rs.1000, and Rs.2,000 otherwise.  

*Note: The values above are all assumed costs and are not based on any actual values.

The zero dep add-on provides better coverage and peace of mind, ensuring your car's value remains protected even after an accident or damage. At the time of settlement, your claim amount will be higher owing to the fact that depreciation costs are not deducted. This can be opted for as an add-on when purchasing car insurance for a new vehicle or during the renewal of your car insurance policy. It is only applicable to a comprehensive policy and not a third-party policy but must be separately purchased. 

In the event of a claim settlement, it is important to be aware of the depreciation applicable to your car parts, as mentioned in the policy wording. However, you enjoy a significant advantage if you have zero depreciation car insurance. With this coverage, you are not required to pay any of the damage cost. As a result, when you make a claim, you will receive the full claim amount without any deduction for the depreciation suffered by your car.

In contrast, standard car insurance plans without zero depreciation coverage follow a different approach. In such cases, the insurer will only reimburse the loss after deducting the depreciation value of the replaced parts. This highlights the distinct advantage of having a zero depreciation car insurance policy, as it ensures that you receive full compensation for repairs or replacements without any deduction for depreciation.

Zero depreciation car coverage is determined by several factors, including - 

• Location 

Cars in tier 1 cities will have higher premium costs compared to those in tier 2 cities.

• IDV or Sum Insured

The premium calculation takes into account the current market value of the insured vehicle. A vehicle with a higher IDV will have a higher premium cost for zero dep coverage.

• Engine Type

Engines with lower cubic capacities will have lower premiums than those with higher cubic capacities.

• Accessories Installed

Separate calculations are made for car accessories and additional features when determining the premiums.

• Car Age

The age of your car is taken into consideration when deciding the premium for this insurance coverage.

• Type of Coverage

Comprehensive insurance coverage usually has a higher premium than third-party insurance.

• Fuel Type

Premiums vary based on the type of fuel used - diesel, petrol, CNG, or electric vehicles.

• Add-on Covers

The inclusion of additional covers like personal belongings cover, zero depreciation cover, roadside assistance, etc., can impact the overall premium amount.

The following table clarifies what this type of insurance add-on includes and excludes -

Here are some situations wherein it's beneficial to consider zero dep insurance:

• New Car - Protect your brand new car from depreciation deductions during repairs or replacement.
• Expensive or Luxury Cars - Safeguard against high costs of spare parts for luxury vehicles.
• City Driving - Cover repair expenses for minor accidents or scratches in congested city areas.
• New or Inexperienced Drivers - Reduce the financial burden of repairs for new or young drivers.

Comprehensive Coverage

Zero Dep Car Insurance provides comprehensive coverage by eliminating the depreciation factor. It ensures that the insurance company covers the full cost of repairing or replacing damaged car parts, without considering the age or depreciation value of the vehicle.

Higher Claim Payouts

Zero Depreciation Insurance ensures that customers' out-of-pocket expenses are reduced as insurers pay the claim without deducting the depreciation component from the value of car parts, resulting in higher claim payouts compared to standard car insurance policies. 

Budget-Friendly

Zero dep cover provides cost-effective coverage in the long run. While the premium for this policy may be slightly higher than regular insurance, the savings on repair costs, especially for expensive car parts, can outweigh the additional premium.

Enhanced Resale Value

By preserving your car's value through comprehensive coverage, Zero Dep Insurance can contribute to maintaining a higher resale value for your vehicle. This can be advantageous if you plan to sell or exchange your car in the future.

This add-on will affect three components of car insurance:

• Coverage - Your car insurance policy will have a higher coverage
• Claim Amount - The claim amount will be higher as depreciation will not be deducted
• Premium  - The premium will be higher as the coverage is higher in a standard comprehensive policy

Also, 

• In most cases, a zero dep insurance cover can only be purchased for cars under 5 years. This may differ from policy to policy.
• Some policies have a limit of the number of zero depreciation claims you can make, this add on cover policy will not be valid once you have claimed for the specified number of times, as mentioned.
• A zero depreciation cover differs from a comprehensive cover, it is a policy add-on.
• A zero depreciation car insurance add-on cover can be transferred to the new owner of a second-hand car.