Zero Depreciation Car Insurance

Zero Depreciation Car Insurance – Is It Really Bumper-to-Bumper?

Have you ever considered buying a Zero Depreciation car insurance for your car’s motor insurance policy?

A car insurance policy is compulsory when you purchase a new car. Why do you need insurance? In case of any damage to your car due an accident, an insurance policy reduces your liability to a great extent. The insurance company takes care of the cost incurred because of repair or replacement of car parts, subject to certain conditions.

If you think that the insurance company pays the entire cost of the damages to the repair of the vehicle, you are wrong. There is an element of depreciation involved in the transaction. This entails that the insurance company is responsible for honouring the insurance claim, subject to deduction of depreciation. Is that not a loss to you? Yes, it is.

This brings you to the next question. “Is there a way out by which you do not incur any loss because of the depreciation factor?” Yes, there is. You can go for a ‘Zero Depreciation car insurance Policy (Zero Dep)’. Let us look into the concept of Zero Depreciation and understand the implications, benefits, and demerits in this article.

What is Depreciation?

Before we go into the actual concept of Zero Depreciation car insurance, let us look at the concept of depreciation in brief. In very simple terms, depreciation is the decrease in the value of the assets as they grow older.

When does the depreciation start taking effect? The ‘depreciation count’ starts the moment your new car rolls out of the car showroom. It indicates that the car experiences an immediate reduction in value from ‘Day 1’.

Your car has metal, plastic, fibre, and glass parts. Each part has a different rate of depreciation.

Effect of Depreciation:

The concept of depreciation comes into effect only if you make a claim against the insurance company for damages caused to the car. Is there any thumb rule for evaluating the depreciation amount in case of any claim for damages? The Indian Motor Tariff (IMT) have stipulated the following deduction by way of depreciation.

1. Rubber, plastic, nylon parts and batteries – 50%
2. Fibre components – 30%
3. Metal parts – Depends on the age of the car*

It works out in the following manner:

0% for the first six months

5% for the first year (over 6 months to 1 year)

10% for the second year and so on}

What does this signify? When you claim damages from the insurance company, the insurance company honours your claim by paying the amount after deducting depreciation based on the proportion stipulated by the IMT. This deduction is known as ‘Claim Depreciation on the car insurance”.

Concept of Zero Depreciation:

When you take a ‘Zero Depreciation Add-On Cover’ on your car insurance policy, you get protection against the ‘Claim Depreciation’. This entails that you do not incur any payment from your side because of the depreciation factor. In other words, the insurance company can pay the cost of your damaged parts without deducting depreciation on the same.

Zero Depreciation – Cost

There is no such thing as a free lunch in this world. Similarly, the Zero Depreciation Add-On Cover comes at a cost—a higher premium. But if you’re likely to make a claim in the year you may want to pay a little extra in the start to avoid the heftier payment later.

Is it compulsory to take this Zero Depreciation car insurance? Strictly speaking, it is not, but it is advisable to do so.

Zero Depreciation – Who Can Buy It?

People purchasing new cars or those possessing relatively new cars less than 5 years old should preferably go for Zero Depreciation Add-On Cover. This cover is beneficial under the following circumstances.

• Those purchasing new cars / possessing relatively new cars
• Those possessing luxury cars
• Drivers who are new / inexperienced
• Those residing in accident-prone areas
• People who worry about minor dents and scratches on the car body
• People possessing cars having expensive spare parts

This is only an indicative list. In fact, anyone can buy this Add-On cover as long as your insurance company is comfortable with it.

Zero Depreciation – Factors Affecting It

Generally speaking, the Zero Depreciation premium depends on the following three factors.

• Age of the car – Usually, insurance companies do not offer this Add-On cover for cars older than 5 years.
• Model of the car – In principle, you can take this cover on any model, but people usually prefer to take it on the higher-end models.
• Location – whether your residence is in an accident-prone area or in an area with comparatively less risk

Zero Depreciation – What Does It Cover?

• This Add-On cover offers 100% coverage for all kinds of fibre, rubber, plastic, and metal parts without deducting any amount by way of depreciation.

Zero Depreciation – What Does It Not Cover?

• It does not cover engine damage due to oil leakage or water flooding it.
• This policy does not cover damage to tyres, batteries, and any kind of mechanical breakdown.
• It does not cover oil change or change of consumable items.
• This policy does not cover external fitting like gas kits, etc

Zero Depreciation – Benefits

The benefits of taking this Add-On cover are as follows.

• You get full protection against the ‘Claim Depreciation’ factor.
• The insurance company bears the maximum cost of repairs, subject to certain mandatory deductions.
• This policy is perfect for people who prefer all-year protection for their cars

Zero Depreciation – Drawbacks

Take note of the following drawbacks of taking this Add-On cover

• You have to pay a higher amount as premium in comparison to the standard car insurance premium.
• Some insurance companies may not wish to underwrite Zero Depreciation policies for older cars—and if they do, it would be for a much higher premium

Zero Depreciation – How Does It Work?

We shall make it clear with the following live example. Consider you have a car that’s over 6 months old but less than 1 year in age; it is worth Rs 10 Lacs. There has been a minor accident necessitating repairs to various parts of the vehicle. The total cost of the repairs comes to say Rs 29,000. The breakup of the expenses is as follows. We shall also look at the depreciation factor that comes into play.

Part - Metal parts

Damage cost in Rs. - 10,000.00

Depreciation / the amount you have to incur - 5% = 500.00

Part - Plastic parts

Damage cost in Rs. - 14,000.00

Depreciation / the amount you have to incur - 50% = 7,000.00

Part - Fibreglass parts

Damage cost in Rs. - 2,000.00

Depreciation / the amount you have to incur - 30% = 600.00

Part - Windscreen

Damage cost in Rs. - 3,000.00

Depreciation / the amount you have to incur - 0% = 0

Part - Total expenses

Damage cost in Rs. - 29,000.00

Depreciation / the amount you have to incur - 8,100.00 – Amount you incur

This table clears the concept of how insurance claims work. Hence, you see that in case of a claim for Rs 29,000.00, you get Rs 20,900 only. You have to spend Rs 8,100.00 from your pocket towards depreciation. This is a very simple example. In reality, you find various other factors coming into play as well.

The term ‘Zero Depreciation’ means that you do not have to incur any cost towards depreciation. This entails that you get full coverage and thereby complete compensation. Thus you see in a Zero-Depreciation policy, you do not have to pay anything. The insurance company pays the entire amount.

Zero Depreciation – Frequently Asked Questions

How is Zero Depreciation Add-On cover different from the standard car insurance?

The above table explains it all. In short, we can say that the insurance company pays for the entire cost of repairs without accounting for the ‘Claim Depreciation’ factor.

Is this Zero Depreciation Add-On cover available for old cars?

In the normal case, only new cars are eligible to go for the Zero Depreciation Add-on Cover. However, insurance companies do consider if the car is relatively new. By relatively new, we understand that the car should not be more than 5 years old. Some companies offer a fixed amount of deduction for older cars that acts like a quasi-Zero Depreciation car insurance policy.

When is Zero Depreciation Add-On Cover ideal?

Practically speaking, all cars should have this policy in force. It is beneficial under the following circumstances.

1. If you own a luxury vehicle, the spare parts can get very expensive. Naturally, this policy will be of benefit to you.
2. Ideally, new and inexperienced drivers should opt for this additional cover as they stand a greater chance of damaging the car. That does not preclude others from opting for this policy.
3. The location of your residence plays a great role in your decision to opt for this Add-On cover. If you live in an accident-prone area or drive regularly in accident-prone area, it makes sense to go for this additional cover.
4. If you are a person with a finicky nature that worries about bumps and dents on your car’s body, you can go for this additional cover.
5. If you own a car having expensive spare parts, it augurs well to opt for the Zero Depreciation Add-On cover. You stand to save a lot of money in the event of any untoward damage.

Is it possible to take Zero Depreciation Add-On Cover after 5 years?

The add on premium amount increases every year with the age of the vehicle, also there is a significant loss for the insurance company if they were to offer zero depreciation claims on severely depreciated parts. Hence, insurance companies do not normally encourage Zero Depreciation Add-on cover for cars over 5 years old. However, every rule has an exception. You should contact your insurance provider can explore this possibility of getting Zero Depreciation cover for your older vehicles. There are chances of the company allowing the same, especially if there has not been any claim in the previous years. Customer loyalty plays an important factor as well. Of course, the premium will be higher the older the car gets.

I was told the Zero Depreciation is a bumper to bumper coverage, is this true?

A lot of people may claim to sell you a Zero Depreciation add-on as fully bumper to bumper insurance, but you should be aware that a few types of damages and certain parts of the car won’t be covered even despite having a Zero Depreciation cover. So be informed about the exclusions (what isn’t covered) when it comes to buying this cover!

1. It does not cover engine damage due to oil leakage or water flooding.
2. This policy does not cover damage to standalone tyres, and any kind of electrical/mechanical breakdown.
3. It does not cover oil change or change of consumable items.
4. This policy does not cover external fitting like gas kits, etc
5. Customers also need to bear the claim excess

Even despite this, the Zero Depreciation can be a cheaper policy as explained in our example above if you are likely to make a claim for sure.

Final thoughts On Zero Dep:

Zero Depreciation, as the name suggests, does not account for the ‘claim depreciation’ amount while honouring insurance claims. Hence, it is beneficial for people buying cars and expect to make a claim for any reason. You should not mind paying the extra 15-20% over the regular insurance premium to avail the additional benefits offered under this Add-On policy. We trust that we have cleared the concept of Zero Depreciation.

Also you want to know how a Zero Depreciation is different from a third party or comprehensive insurance policy? Read our blog to know more!