How Does a Zero-dep Car Insurance Policy Benefits You During Claims?

The depreciation value of a car is taken into consideration when you file an insurance claim. The insurer analyzes the damage sustained by the car and the value is excluded from the final claim amount that you receive. To overcome this, Zero Depreciation cover can come to your rescue.

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Role of Depreciation in Car Insurance

The value of a car gets reduced the moment you take it out of the showroom. Furthermore, this value will keep reducing over time. This gradual reduction in the market value of a car is called depreciation. Depreciation, basically, is a decrease in the value of an object with time. This is why the value of a car starts decreasing once purchased.

The depreciation value is not directly associated with the car. Instead, it is associated with different non-durable materials like metal, plastic, glass, fibre, and others. Again, for every material, there is a different depreciation rate. Thus, estimating the rate of degradation of these materials reflects the overall depreciation of a car. Even after buying the best car insurance policy from a reputed insurance service provider, you will still have to face depreciation on its value during the claim.

What is Zero Depreciation Cover?

A zero depreciation cover is simply an add-on cover that covers the depreciation applicable to the insured car’s value. It complements the basic car insurance policy And ensures that you don’t have to face any depreciation in your insurance coverage.

With a zero dep car insurance policy, complete coverage against depreciation is offered to your car. Consequently, the insurer won’t subtract the depreciation value while covering any claim amount. Zero depreciation cover is also termed as Nil Depreciation.

To avoid the issue of depreciation, almost every car owner wisely prefers to avail a zero depreciation car insurance policy. You can also opt for zero dep cover during car insurance renewal.

Difference Between Zero Depreciation Car Insurance and Normal Car Insurance

Let’s take an example to understand the difference:

Normal Car Insurance Cover:

Suppose, the overall cost of damage repair for your car is Rs. 10,000 and you have filed an insurance claim. While processing the claim, the insurer will first determine the depreciation rate associated with the damaged parts and thereafter, will calculate the payable claim sum. Let’s say that the insurer calculated the depreciation rate as 20%. Therefore, the amount offered to you as claim settlement will be 20% of Rs 10,000 i.e. Rs. 8000 only.

Zero Depreciation Cover:

Suppose you have a zero depreciation car insurance policy where the depreciation value is not taken into consideration while estimating your claim amount. Hence, the insurer will offer the entire amount of Rs. 10,000 as your claim amount.

You May Also Read: All About Zero Dep Insurance

Zero Depreciation Insurance vs. Standard Comprehensive Insurance

Using the table below, you can check if a zero depreciation cover is better than a standard comprehensive insurance policy:

Parameters Zero Depreciation Policy Standard Comprehensive Insurance without Zero-dep
Claim settlement Full coverage Coverage based on the current value of a car
Premium Bit high (approx. 20% more) Comparatively lesser
Cost of Repairing Insurers will pay the maximum amount i.e. bumper-to-bumper coverage Some amount will have to be paid by the policyholder from his/her own pocket
Age of the car Covers cars of up to 5 years only. But, feasible for cars up to 3 years old Covers any car less than 15 years old

Benefits of Zero Dep Car Insurance During Claims

Take a look at the zero dep car insurance benefits during claims:

  • Reduce Out of Pocket Expenses - As the depreciation factor is not taken into consideration during claim settlement, the out-of-pocket expenses are greatly reduced.
  • Enhanced Coverage - Enhances automobile insurance coverage and efficiently secures your prized possession financially.

Factors to Consider Before Buying a Zero Depreciation Cover

There are certain things that you need to consider while buying a Zero-dep add-on cover:

  • Cost of Car Policy –As a Zero Depreciation cover offers complete coverage without considering any depreciation, it costs slightly more than a comprehensive insurance policy.
  • Best-Suited for –The Zero Depreciation cover is only applicable to new cars up to five years old. If your car is more than five years old, you should consult your insurer for a suitable course of action. For cars older than 5 years, zero-dep is offered but only from offline sources.

Calculation of the Rate of Depreciation

The insurance Regulatory and Development Authority of India (IRDAI) has designed a specific rate chart for determining the depreciation value.

  • For plastic, nylon, and rubber parts – 50% depreciation is to be deducted
  • For fibreglass components – 30% depreciation is deducted
  • For wooden and metallic parts – Depreciation is subtracted as per the age of the car For a 1st year – 5%, for 2nd year – 10% and so on

Therefore, depending on the age of your car, the insurer calculates the depreciation value.

What is Not Covered by Zero Dep Car Insurance?

Not all the repairing expenses are covered under zero depreciation coverage. There are certain things that are excluded. Mainly, the accessories that are not part of the standard product are not included in the coverage. The insurers also do not include batteries or tyres either.

Moreover, the mechanical breakdown or wear and tear of the car is also not covered. Every insurance company has different terms and conditions. So, you must go through the policy fine print carefully to understand the exclusions of the coverage.

Is Zero Depreciation Cover Worth It?

Yes, zero depreciation cover is absolutely worth it. It’s true that zero dep car insurance has its advantages. Though the cost associated with the zero depreciation policy is around 20% more than that of a standard comprehensive policy, it will still turn out to be a great investment. Instead of paying a large amount out of your pocket, it’s better to pay a little higher premium and forget about these costs. 

Zero depreciation add-on cover will get you the full value of your vehicle when it is severely damaged or stolen. Hence, it is a wise decision to invest in a zero depreciation add-on cover.

Premium of a Zero Depreciation Car Policy

As you might know by now, you will have to pay a higher premium for a zero depreciation cover. This premium mainly depends on the Insured Declared Value (IDV) of the car. IDV is the maximum amount that you can claim against total damage, loss or theft of your car. 

Thus, the more is the IDV, the more will be the premium towards a zero depreciation add-on cover. In general, the premium for a zero depreciation add-on cover is 10 -20% more than a standard comprehensive policy.

Factors Affecting the Zero-Dep Premium

Apart from the IDV, there are some other internal factors that greatly affect the premium of this particular add-on cover. These are:

  • Age of Car - Older the car, the more is the car premium. Most insurers don’t offer zero depreciation cover for cars older than five years while some have even restricted it up to three years. However, a few insurers have also started offering a 7-year zero dep cover.
  • Model of the Car -There are some car models which are not covered by a Nil depreciation policy. Thus, you must consult with your insurer/agent before buying this add-on cover.
  • Location - If you live in an accident-prone area, the premium towards a zero depreciation policy will be higher.

Who Needs to Buy Zero Depreciation Add-on Cover?

Zero Depreciation cover is highly recommended for new cars. But, there are some other cases where a zero-dep rider is indispensable:

  • People who have luxurious cars should buy a zero depreciation plan to avoid the high expenses incurred on maintenance as the cost of spare parts and the rate of depreciation of such cars is higher.
  • New drivers who are not well-acquainted with driving should go for zero-dep cover as their chances of meeting an accident are higher. To reduce the financial stress after accidents, zero depreciation cover is a must for new drivers.
  • People who are living in accident-prone areas should also go for this add-on cover. With this add-on cover, they can easily cover their damages without any worries.
  • If you worry about dents and bumps on your car and want to keep it in pristine condition, then you should buy a zero depreciation add-on cover.

Wrapping Up!

Zero depreciation add-on cover comes with multiple benefits that can help you save a lot during claims. Thus, check and compare online to grab the best deal on the zero depreciation rider. Also, do not forget to renew your zero depreciation car insurance policy on time.

Written By: PolicyBazaar - Updated: 11 May 2022
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