How Zero Depreciation Car Insurance Works?
Zero depreciation car insurance has become increasingly important for car owners who want complete financial protection.
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What is Zero Depreciation Car Insurance?
Zero depreciation car insurance is an optional add-on in car insurance that provides full claim settlement without considering the car’s depreciation. In simple terms, if the insured vehicle sustains unintentional damages, the zero dep add-on will help reduce the policyholder's out-of-pocket expenses by covering the complete cost of the part repair or replacement.
How Does Zero Depreciation Add-on Work?
To help you understand how zero depreciation cover in car insurance works, here are two scenarios:
Scenario 1: With Zero Depreciation Cover
If, in an unfortunate accident, your car gets damaged, and the repair cost is Rs. 50,000. With the zero dep add-on, the insurance company will cover the entire repair amount. You won't have to bear any out-of-pocket expenses except the compulsory deductibles, also known as the file charges.
Scenario 2: Without Zero Depreciation Cover
In the same scenario, without zero depreciation coverage, the insurance company will consider the depreciation of the insured car's parts— for example, a 30% depreciation on the car parts worth Rs. 40,000. In this case, you would receive Rs. 44,000 (Rs. 50,000 - Rs. 12,000 depreciation) as the claim amount, and you would have to pay the remaining Rs. 12,000 from your pocket.
Benefits of Zero Depreciation Add-on in Car Insurance
Zero depreciation car insurance, also known as nil depreciation or nil dep, offers the following benefits:
- Higher Claim Payout: Zero depreciation cover provides you with a higher claim amount, thus ensuring minimal out of pocket expenses.
- Small Extra Premium: You can buy zero dep cover for a nominal extra premium on your motor policy.
- Peace of Mind: Knowing that you are protected comprehensively, the zero dep add-on ensures that you can drive stress-free.
Who Should Buy Zero Depreciation Cover in Car Insurance?
In a four-wheeler insurance policy, a zero depreciation cover is recommended for:
- New car owners
- Luxury or high-end car owners due to a high cost of part repair/replacement
- First-time drivers
- Those who reside in accident-prone areas
Car Depreciation Rates as per IRDAI
Here are the car depreciation rates in India as set by the Insurance Regulatory and Development Authority of India (IRDAI) based on car components as well as the age:
| Part Type |
Depreciation Rate (%) |
| Plastic/Rubber/Nylon/Airbags/Tyres/Tubes/Battery |
50% |
| Fibreglass |
30% |
| Glass |
NIL |
*With the Zero Depreciation cover, these deductions do not apply; you receive the full claim amount for all replaced parts.
On the other hand, for metal or wooden parts, the car depreciation rates are as follows:
| Vehicle Age |
Rate of Depreciation (%) |
| 0 - 6 months |
5% |
| 6 months - 1 year |
15% |
| 1 - 2 years |
20% |
| 2 - 3 years |
30% |
| 3 - 4 years |
40% |
| 4 - 5 years |
50% |
| Above 5 years (for obsolete models) |
Decided mutually between the insurer & car owner |
What Does Zero Depreciation Car Insurance Not Cover?
The zero-dep cover in a car insurance policy has specific exclusions every policyholder should know about. It doesn’t cover:
- Mechanical breakdown
- Engine damage due to water ingress or oil leakage
- Damage from regular wear and tear
- Driving without a valid licence or if drunk driving
- Damage due to drunken driving or illegal use
Zero Depreciation With Consumables Cover in Car Insurance
In car insurance, combining a zero dep with consumables coverage provides complete protection. This covers both part replacement without depreciation and the cost of items like engine oil, nuts, bolts, brake fluid, and lubricants. While the nil dep cover ensures full claim value for parts, consumables coverage fills the gap left by standard policies and reduces your out-of-pocket expenses.
Impact of Bumper-to-Bumper Cover on Car Insurance Claims
The zero dep cover, also referred to as the bumper-to-bumper protection add-on, significantly increases your car insurance claim payout by removing depreciation deductions on replaced parts like plastic, rubber, fibre and metal components. This results in low out-of-pocket costs because the insurer pays for the entire cost of repairs. Additionally, it guarantees quicker approvals and higher-quality repairs with original equipment manufacturer parts, improving the entire claim process. It provides robust protection and long-term value retention for more recent vehicles.
