What is Covered Under Zero-Depreciation Car Insurance Policy?

Zero depreciation is a type of car insurance policy that provides complete coverage for the damage caused to the car in an accident excluding tyres and batteries. In a Zero depreciation car insurance, the depreciation factor is excluded from the coverage and the entire cost for the replacement of any body part of the car is provided to the policyholder.

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This policy provides 100% coverage for any metal or fiber body part of the car except the engine damage because of oil leakage. The policy does not cover any mechanical breakdown and you can raise a limited number of claims in a year under this policy. It is recommended to the car owners to purchase this policy and it costs around 15-20% of the standard policy premium rates. Those who do not know what depreciation means, let us tell you.

Depreciation

When you purchase something, the value of that particular item or asset decreases day by day. This reduction in value is known as depreciation.

Here is an Example

When you purchase a brand new car at Rs. 5 lakh. The value of the car starts reducing as soon as you take the delivery and get it out of the showroom. Then in one year, the value of the car will depend on its condition and how many kilometers it has been driven.

How Zero-depreciation can Benefit You?

There are several benefits of zero-depreciation cover. They are as follows:

  • Provides financial coverage for any damage or loss caused by an accident.
  • It enhances your standard car insurance and reduces the cost of damaged body parts to zero.
  • It takes care of the expenses incurred as a result of the insured car’s depreciated value as per the current market value.
  • The depreciated value is not considered when providing cover for the incurred expenses after repairing or replacing the damaged part of the car.

Things to Keep in Mind While Opting for Zero-Depreciation Car Insurance

While opting for a zero-depreciation car insurance policy, you should keep the following things in mind.

  • Zero-depreciation car insurance is an Add-on cover.
  • Your car should not be older than 3 years otherwise you won’t be eligible enough to opt for this cover.
  • This cover provides better coverage than the standard car insurance plan therefore the premium rates of this cover are higher than the standard ones.
  • It is recommended to the people who own luxury cars or the ones who live in safe and low-risk locations.
  • You can only get cover for some specific cases and do not cover for minor damages like dents.
  • Fifty percent depreciation will be deducted on batteries as well as the parts that are made of nylon, plastic, and rubber.
  • 30% depreciation will be deducted for the parts made of fiber.
  • For wooden parts of the car, the depreciation deduction is analyzed by the age of cars.
  • For wooden parts of the car, the deductible value for depreciation is 5% for one year, 10% in 2 years, 15% in 3 years, and so on.

How Zero-Depreciation Works during Claim Settlement?

When you raise a claim with a standard car insurance policy, the insurer only pays for the depreciated amount of the replaced car parts. A standard insurance policy can make you pay a high amount if your car is new.

Difference between Zero Depreciation Cover & Standard Cover

 

Standard Cover

Zero-depreciation Cover

Premium Rates

Low

High

Cost of Repairing & Fiber-Plastic

The policyholder has to pay more

The insurer bears the maximum amount

Claim

The claim amount depends on the current value of the car that depreciates the coverage amount

Without Considering the depreciated amount the coverage is settled.

Age of Car

Provide coverage for a car less than fifteen years

Provides coverage for new cars up to five years

Some of the insurance providers do offer zero-depreciation cover for cars older than 5 years as well. It varied from company to company.

Here is An Example

Let us give you an example of how much you will have to pay for the damaged parts and its depreciation. Assuming your car is worth Rs. 15,00,000.

Car Body Parts

Damage Cost (Rs.)

Depreciation Cost (Rs.)

Amount with Zero-depreciation (Rs.)

Windscreen

4000

0

0

Fiberglass

6000

1200

0.6

Plastic parts

16,000

8000

1

Metal Parts

12,000

650

0.1

Labour

6000

0

0

Total

44,000

9,850

1.7

Disclaimer: The above mentioned figures are assumed as the actual cost will depend upon the severity of damage caused to the car and how much depreciation cost is applied by the insurer.

So, under a standard car insurance policy, you will have to pay Rs. 9,850 but under zero- depreciation:

Premium & Claim Cost

With Zero-depreciation (Rs.)

Without Zero-depreciation (Rs.)

Basic Plan Premium Rate(A)

17,000

17,000

Zero-Depreciation Add-on (B)

3,000

0

Total Cost of Plan (C) A+B

20,000

17,000

Deductible per claim* (D)

4000

4000

Repairing Cost (E)

35,000

35,000

Payable Amount (F)

0

9,850

Total Expense in a Year (G) (A+D+F)

17,000+ 4,000+0= 21,000

17,000+4000+9850= 30,850

Saved (E-G)

35,000-21,000= 14,000

35,000-30,850= 4,150

Disclaimer: The above mentioned figures are assumed as the actual cost will depend upon the severity of damage caused to the car and how much depreciation cost is applied by the insurer.

This is the amount you can save under zero-depreciation policy when you raise the claim once a year.

Conclusion

Now that we have told you almost everything about the zero-depreciation add-on and how it works and how much more you can save in a year under this add-on, it is recommended by the insurance experts to purchase this policy in the initial years of purchasing the car. It is also advised that you purchase the insurance policy online as it is easier than purchasing the policy offline. You can compare different plans in one place and add-on riders as well as calculate the premium rates of your desired policy.

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