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      Vehicle Depreciation Rates and Their Impact on Car Insurance Premiums

      Every vehicle loses its value as it ages. It has a direct impact on its cost, resale value, and consequently, car insurance premiums. Hence, this makes it important to understand what causes vehicle depreciation so you can choose the right car insurance policy. This article explains what the vehicle depreciation rate is, how it's calculated, and its impact on car insurance premium prices.

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      What is Vehicle Depreciation?

      Car depreciation rate, or vehicle depreciation rate, is the loss of the value of a car over the years. This is because of vehicle aging, mileage, and the usual wear & tear. As soon as you take a vehicle out of the showroom, its market value starts declining. Depreciation is driven by age, usage, wear and tear, market demand, and vehicle type (internal combustion vs electric).

      How is the Vehicle Depreciation Rate Calculated?

      The calculation of the vehicle depreciation rate is simple. Here is the formula:

      Vehicle Depreciation Rate = ((Vehicle's Original Cost- Current Market Value) / Original Cost) x 100

      So, for example, you own a car with the original price of Rs. 15,00,000, and the current market value of Rs. 12,00,000.

      In this case, the motor vehicle depreciation rate will be:- ((15,00,000 - 12,00,000)/15,00,000) X 100, which is 20%.

      If you match this car depreciation rate as per the standard fixed by IRDAI (Insurance Regulatory and Development Authority of India), your four-wheeler comes about 2 to 3 years old.

      Another method to calculate the vehicle depreciation rate is through the depreciation calculator, which will help you determine the Insured Declared Value (IDV) value for your car.

      What is the Vehicle Depreciation Calculator?

      A vehicle or car depreciation calculator is an online tool that lets you estimate your car's market value, which directly impacts the car insurance premium. With the help of this calculator, you can determine your car's depreciated value after it has been used.

      To know your vehicle's market value using this online tool, you can visit the car depreciation rate calculator page on Policybazaar.com and follow these steps:

      1. Enter your vehicle's registration number.
      2. Select its make & model, variant, fuel type, RTO, and registration year.
      3. Once you click 'Check IDV,' your car's recommended IDV will be displayed.

      Standard Depreciation Rates for Vehicles

      The table below highlights the standard car depreciation rates in India as set by IRDAI. Have a look:

      Age of the Vehicle Vehicle Depreciation Rate
      Less than 6 months 5%
      6 months - 1 year 15%
      1 - 2 years 20%
      2 - 3 years 30%
      3 - 4 years 40%
      4 - 5 years 50%
      Over 5 years Decided by insurer and vehicle owner as per market value

      Is the Electric Vehicle Depreciation Rate the same as that of Fuel-Based Vehicles?

      Petrol and diesel cars depreciate at a fixed percentage, which is set by the IRDAI. Hence, as of now, the motor vehicle depreciation rate for both fossil fuel-based and electric cars is the same.

      But, the main concern is the EV battery, which is the most important and costly part. The longevity of an EV battery (8-10 years) is much lower than that of a car's engine (about 10-15 years). However, it is typical of what you can expect from an electric car. Due to this, there are questions regarding the uniformity in the electric vehicle depreciation rate at present.

      Moreover, electric car insurance prices can also differ. Third-party premiums for EVs are based on their battery capacity. But the comprehensive insurance price also includes Own Damage (OD) premiums, which may be higher for EVs due to expensive battery repair and replacement costs. Thus, EV owners should keep these factors in mind while choosing an electric car insurance policy.

      Maybe in the future, the depreciation rate specific to EVs might be introduced by IRDAI for EVs once the EV market matures and depreciation data becomes available. But, till then, it remains the same as that of fuel-based vehicles.

      What Factors Influence the Vehicle Depreciation Rate?

      Several factors affect the depreciation rate for vehicles. Let's take a look:

      • Vehicle Cost: The most obvious factor that affects the vehicle depreciation rate is the price of the vehicle. Higher-priced four-wheelers suffer more depreciation than the economical models.
      • Age of the Vehicle: The older a vehicle gets, the more its value is reduced.
      • Make & Model: Popular brands usually have high resale value due to increased demand. Hence, it leads to a slower vehicle depreciation rate. Unpopular or limited edition cars depreciate faster.
      • Distance Driven: Higher mileage leads to more wear & tear, consequently, faster depreciation.
      • Vehicle Condition: If a car is not maintained properly, it will experience higher depreciation rates.
      • Driving History: Generally, the vehicle depreciation rate will be higher if it has a history of accidents.

      Impact of Vehicle Depreciation on Car Insurance Premiums

      The vehicle depreciation rate directly influences car insurance premium amounts. The policy premium for vehicle insurance is calculated with the IDV, which is the maximum amount your car insurance company gives in case of total loss or theft of the insured four-wheeler.

      Since a car's value decreases over time, so does its IDV. Thus, it results in a lower car insurance premium and smaller claim amount settlements. Moreover:

      • Since the depreciation lowers the original value of the vehicle & its parts, the car depreciation rate affects the reimbursement amount for vehicle repairs.
      • Any car insurance claim for the replacement of metal or rubber parts is settled after factoring in the vehicle depreciation rate.
      • With the increased depreciation rate for cars, the out-of-pocket expenses also increase.

      Some Tips to Slower Down Car Depreciation Rate

      While the vehicle depreciation cannot be stopped, you can slow it by following these tips:

      • Regular Maintenance: Keep your vehicle well-maintained with routine servicing from authorised service centres. Maintain service records and try getting the damages repaired promptly to avoid wear & tear.
      • Zero Depreciation Car Insurance: To receive the entire value in case of a claim, without the depreciation deduction, you can opt for the zero depreciation add-on cover in car insurance.
      • Protect Vehicle Interiors & Exteriors: Use seat covers, have your car's paint protected, keep your tyres safe, and always park in safe spaces.
      • Consider a High Resale Value Car: Another tip to slow the vehicle depreciation rate is to buy a car with good resale value. Opt for common colours, popular & reliable brands, and fuel-efficient models.

      In a Nutshell,

      Depreciation is unavoidable — every vehicle loses value over time. But by understanding the car depreciation rate and choosing the right add-ons, you can lower its impact on both premiums and claim payouts with your car insurance. Whether you drive a petrol, diesel, or electric vehicle, knowing its depreciation rate can help you make smart choices when purchasing or renewing a four-wheeler insurance policy.

      FAQs

      • Q1. What is the average car depreciation rate in India?

        Ans: In India, the average depreciation rate for a car is around 15-30% for the first 3 years of vehicle ownership. But the exact vehicle depreciation rate depends on various factors, such as car conditions, kilometres driven, market demand, etc.
      • Q2. What is the best way to calculate car depreciation rate?

        Ans: The best method to calculate the vehicle depreciation rate is using the car depreciation calculator online that is available on various insurance websites. You can also visit Policybazaar.com and determine your car depreciation rate in just a few clicks.
      • Q3. What is an example of car depreciation?

        Ans: The example of depreciation for cars is when you buy a car worth Rs. 12 Lakh and sell it two years later for Rs. 10 Lakh, you lose Rs. 2 Lakh in the process, facing a depreciation of ~20%. This reduced value of your car is referred to as vehicle depreciation.
      • Q4. What are the fastest depreciating cars in India?

        Ans: In India, the vehicle depreciation rate for luxury and premium cars is the fastest compared to other models.
      • Q5. What are the slowest depreciating cars in India?

        Ans: Mass-produced cars hold their value well, and thus experience slower vehicle depreciation.
      • Q6. How is depreciation calculated in car insurance?

        Ans: The IRDAI has fixed the standard car depreciation rate slabs based on the age of the vehicle used by insurers. This helps calculate the IDV (Insured Declared Value) of a car.
      • Q7. Can I claim more than IDV?

        Ans: Some insurance companies might allow you to set a higher IDV, which will result in a higher car insurance premium amount. But, it is recommended that you declare the IDV of your car close to its current market value.
      • Q8. Can my car appreciate in value?

        Ans: Yes, when the demand for your car is high and the supply is low, it may not experience depreciation at all, or its value may increase too.
      • Q9. How does vehicle depreciation impact car insurance claims?

        Ans: The car depreciation rate has a direct impact on insurance premiums and claims. A vehicle's value decreases over time, and insurance companies consider the depreciated value while settling claims, particularly when it is total loss. By having a zero depreciation add on cover with your car insurance, you can avoid the depreciation deduction at the time of claim.
      • Q10. What is a zero-depreciation add-on in car insurance?

        Ans: Zero-depreciation car insurance is an add-on cover that you can purchase with an own damage or comprehensive car insurance. It helps you get complete compensation of the claim amount in the event of vehicle theft or total loss since the insurer will not consider the car depreciation rate while settling the amount.
      • Q11. Do electric vehicles depreciate faster?

        Ans: As of now, the electric vehicle depreciation rate is about the same as that of a petrol or a diesel car. However, due to the EV battery life (8-10 years), which is less than that of engine's, the depreciation on electric cars could be slightly higher in the future.
      • Q12. What is the 5 year depreciation of a car?

        Ans: The car depreciation rate after 5 years of its age is decided mutually between the insurer and vehicle owner.
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      Disclaimer: The list mentioned is according to the alphabetical order of the insurance companies. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website www.irdai.gov.in
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