Are you planning to purchase a brand new car? Advanced features for a safe travel experience will certainly be your priority in that case! In any case, insurance is mandatory. It is also easy now with online car insurance purchases from company websites. Besides the basic third-party cover, have you thought about the optional covers in your car insurance policy that can offer additional protection? They also save you out-of-pocket expenses in case of accidents.
The Zero Depreciation Cover is the most prominent additional cover as the depreciation value becomes crucial during every claim settlement. So, here are a few things to keep in mind when getting zero depreciation car insurance.
What is Depreciation?
The individual components of your car get worn out with time. As a result, it will reduce the value of your car considerably. This reduction in value is called depreciation. It is determined by the age, make and model of the car.
Why is Depreciation Important in a Car Insurance Policy?
When you buy a car insurance policy, the Insured Declared Value (IDV) is the basis on which the premium is calculated. The IDV is based on the agreed rates of depreciation for the various parts of your car.
When you lodge a claim, the insurers will finalize the settlement according to the IDV under the policy. Therefore, depreciation is important as it will determine the final settlement of the claim.
What are the Depreciation Rates for a Car?
According to the regulations of the Insurance Regulatory and Development Authority, the depreciation rates are as follows:
- For parts made of rubber/ nylon/ plastic – 50%
- For tyres, tubes, batteries and airbags – 50%
- For components made of fibreglass – 30%
- For parts made of glass – Nil
|Vehicle’s age||Rate of depreciation(%)|
|Less than 6 months||Nil|
|Between 6 months and 1 year||5|
|Exceeding 1 year and less than 2 years||10|
|Exceeding 2 years and less than 3 years||15|
|Exceeding 3 years and less than 4 years||25|
|Exceeding 4 years and less than 5 years||35|
|Exceeding 5 years and less than 10 years||40|
|Exceeding 10 years||50|
In case of a Total Loss or a Constructive Total Loss, the IDV is calculated based on the following depreciation rates:
|Vehicle’s age||Rate of depreciation (%)|
|Less than 6 months||5|
|Between 6 months and 1 year||15|
|Exceeding 1 year and less than 2 years||20|
|Exceeding 2 years and less than 3 years||30|
|Exceeding 3 years and less than 4 years||40|
|Exceeding 4 years and less than 5 years||50|
You have to consider these rates while comparing the car insurance prices from the best Car Insurance companies in india.
How can you eliminate the Depreciation?
It is clear that depreciation will greatly affect the final amount that you will receive under a claim. With time depreciation becomes a bigger factor. You can eliminate the depreciation component in claim settlement by opting for the Zero Depreciation Optional Cover. You can avail of this option during policy inception. It increases the premium amount but brings considerable benefits during the claim settlement process.
Benefits of Zero Depreciation Car Insurance
It is important to be aware of the benefits of the Zero Depreciation Cover before purchasing one.
- It enhances the basic coverage for your car insurance and reduces your out-of-pocket expenses to a great extent.
- The depreciation is calculated with the standard rates as applied based on the current market value.
- Expenses to replace the parts with the necessary new products are settled without considering the depreciation.
- It will keep your car in good condition by replacing the necessary parts done on time with a reduced cost. It will ensure peace of mind as there are no out-of-pocket expenses against the depreciation of parts.
Important Facts to Keep in Mind
- The Zero Depreciation Cover applies to your car only when it is less than five years of age.
- Zero Depreciation Cover does not reduce or disregard the compulsory deductibles from your policy.
- There is a set limit of zero depreciation claims that you can file in a year.
- Zero depreciation will be accounted for only when the repairs involve the replacement of depreciable parts. You can view the detailed guidelines when you do the TATA AIG car insurance renewal online.
Who Should Consider Purchasing Zero Depreciation Insurance?
Zero Depreciation Cover is highly recommended in the following cases:
- New car owners, especially luxury car owners who reside in accident-prone locations
- Car owners having new or inexperienced drivers
- If you have a car that costs expensive spare parts
- If you are extremely concerned about keeping all the parts of your car in the original condition
Depreciation is an important factor considered by insurers while settling your claim for car insurance. Insurance companies deduct this value from the claim settlement amount. Therefore, it will increase your out-of-pocket expenses. However, with a Zero Depreciation Optional Cover, you can nullify the depreciation amount in the calculation. You will have to pay a higher premium to avail of the Zero Depreciation option. It is a very important consideration if you own a luxury car and want to maintain your car’s important parts in the as-new condition!