How a Zero-Dep Car Insurance Policy Benefits You during Claims?
- Details Written by PolicyBazaar -
Updated 20 February 2018
The value of a car gets reduced the moment you take it out of the showroom. Furthermore, this value will keep reducing overtime. 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. Which is why, after buying a car, its value starts decreasing.
The depreciation value is not directly associated with the car; it is associated with different non-durable materials like metal, plastic, glass, fiber, 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.
Depreciation value of a car is taken into consideration when you file an insurance claim. The insurer analyses the damage sustained by the car and accordingly determines a depreciation value. Even after best car insurance policy from a reputed insurance service provider, you will still have to face the depreciation factor during the claim.
What is Zero Depreciation Cover?
To avoid the issue of Depreciation, almost every car owner wisely prefers to avail a Zero Depreciation car insurance policy. A Zero Depreciation cover is simply an add-on cover which complements the basic car insurance policy. With this add-on cover, you don’t have to face any depreciation in your insurance coverage.
With Zero Depreciation car insurance policy, complete coverage against depreciation is offered to your car. Consequentially, the insurer won’t subtract the depreciation value while covering any claim amount. Zero Depreciation cover is also termed as Nil Depreciation.
Difference between an Insurance Cover Loaded with Zero Depreciation and a Normal Insurance Cover
Let’s take an example to understand the difference:
Normal Insurance Cover:
Suppose, the overall cost of damage associated with your car is Rs. 10,000 and you have filed an insurance claim against this amount. 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 Rs. 8000.
Zero Depreciation Cover:
With a Zero Depreciation car insurance policy, the depreciation value is not taken into consideration, hence, the insurer will offer the entire amount of Rs. 10,000.
Now, you need to determine whether or not you need a Zero depreciation rider with your car insurance policy. Using the table below, you can check for yourself if a Zero Depreciation cover is any better than the standard comprehensive insurance policy. Also, do keep in mind your insurance needs.
Zero Depreciation Insurance vs. Standard Comprehensive Insurance
Standard Comprehensive without Zero-Dep
Coverage based on the current value of a car
Bit High (approx. 20% more)
Cost of Repairing
Insurer will pay the maximum.
Some amount will have to be paid by the Insured from his/her own pocket
Age of car
Covers up to 5 years only. But, feasible for cars up to 3 years old.
Covers any car less than 15 years old
Benefits of having a Zero Depreciation Cover
- As depreciation factor is not taken into consideration during claim settlement, the out-of-pocket expenses are greatly reduced.
- Enhances automobile insurance coverage and efficiently secures your prized possession.
Factors to Consider before Buying a Zero Depreciation Cover
There are certain things which you need to consider while buying a Zero-Dep add-on cover.
- Cost of 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 of 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:
Now, on what basis does the insurer determine the depreciation rate? Insurance Regulatory and Development Authority of India has designed a specific rate-chart for determining the depreciation value.
- For plastic, Nylon, and Rubber Parts – 50% depreciation is to be deducted.
- For Fiberglass 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 Depreciation Insurance?
Not all the repairing expenses are covered under Zero Depreciation coverage. There are certain things which are excluded. Mainly, the accessories that are not part of the standard product are the not included in the coverage. The insurers do not include batteries or tyres either.
Again, the mechanical breakdowns due to wear and tear are 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?
It’s true that Zero depreciation cover has its advantages. Though the cost associated with Zero depreciation policy is around 20% more than that of a standard comprehensive policy, it will still turns out to be a great investment.
Instead of paying a large amount out of your pocket, it’s better to pay a little more once in a while and forgetting about out-of-the-pocket repair costs. Zero Depreciation add-on cover will get you the full value of your vehicle when it is severely damaged or stolen. It’s a wise decision to invest in a Zero Depreciation add-on cover.
Premium for Zero Depreciation 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. In fact, it is the most important factor.
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. In general, the premium for Zero Depreciation add-on is 10 -20% more than a standard comprehensive policy.
Factors Affecting the Zero-Dep Premiums
Apart from the IDV, there are some other internal factors that greatly affect the premium of this particular add-on cover.
- Age of Car - Older the car, the more is the premium. Most insurers don’t offer Zero Depreciation cover for cars older than five years; some have even restricted it up to three years.
- Model of the Car -There are some car models which are not covered by a Nil Depreciation policy. 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?
Zero Depreciation cover is highly recommended for new cars. But, there are some other cases where a Zero-Dep rider is indispensible:
- People who have luxurious cars should buy a Zero Depreciation plan to avoid the high expenses associated with 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 as their chances of meeting with an accident is 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.
By now, you must have realized the practical benefits of availing a zero depreciation add-on cover. Thus, check and compare online to grab the best deal on Zero Depreciation Rider. Also, do not forget to renew the Zero Depreciation add-on cover every year.
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