We invest in car insurance to protect us from financial liability during accidents. However, when an unfortunate accident occurs, and we claim insurance, it can be frustrating to receive only a part of the expenses since depreciation comes into play. While most insurers inform us about the fact that the final settlement amount will be subject to depreciation, we usually don’t realize the impact unless it is too late. To allow car owners to avoid such situations, most insurance companies like Tata AIG offer a zero-depreciation cover that does not deduct depreciation while reimbursing for repairs. Today, we will talk about the Zero Depreciation Cover and share some important information that you need to know before you buy car insurance online.
What is Zero Depreciation Car Insurance?
Depreciation is the loss in the value of an asset due to constant use.
If a car is stolen or damaged due to an accident, the losses are covered by car insurance. However, if your car is damaged and needs repairs, then you don’t receive the complete expense of replacing the parts. When you use your car, the parts undergo some wear and tear, and the insurer calculates the remaining value of the parts by deducting depreciation. So, if the value of the part is ₹8000, and the depreciation rate applicable to your car is 50%, then you will receive ₹4000 as a payout. In Zero Depreciation Cover, you will receive the entire amount with deducting depreciation.
In a car, different parts have different rates of depreciation. The insurer provides a predefined list of all the depreciation rates. Usually, the rates are as follows:
- For all metallic parts, depreciation rates can vary between 0 and 50% based on the age of the car
- For all fibreglass parts, the depreciation rates are 30%
- Some parts of the car have a high rate of wear and tear like tyres or tubes, plastic or rubber parts, battery, etc. These parts have a depreciation rate of 50%
Do you need Zero Depreciation car insurance?
A car insurance scheme without the Zero Depreciation Cover reduces the insurance claim amount when you replace damaged parts. Hence, in our opinion, most car owners can benefit from this cover. It is especially beneficial in the following scenarios:
- New car owners – The moment a car leaves the showroom, the depreciation clock starts ticking. If you buy a new car and have an unfortunate accident within a week, you will not be able to claim the entire amount spent on repairs due to depreciation. Hence, new car owners must opt for a Zero Depreciation Cover
- Luxury car owners – Luxury cars are costly, and their spare parts are not cheap either. Even a difference of 20-30% can be a huge amount. Hence, most luxury car owners must opt for this cover
- First car owners – By this, we mean new drivers or people who are driving for the first time. Regardless of the care with which you drive, the possibility of a minor accident cannot be ruled out. Hence, having a Zero Depreciation Cover can help avoid financial losses
- Accident-prone use of the car – Some roads are more prone to accidents. Some areas have a higher rate of damage to parked vehicles due to narrow roads. If you have these factors in common, then opting for a Zero Depreciation Cover is recommended
Remember, most policies don’t cover accessories that are not a part of the standard product. Also, damages due to wear and tear and usually not covered too. You will need to read the policy document to determine the list of exceptions.
How much extra will you have to pay to get the Zero Depreciation Cover?
Zero Depreciation Cover is usually offered as an add-on with most car insurance policies. While the premium for the policy is determined based on various factors like the model of the car, its age, your location, etc., if you want to include the Zero Depreciation Cover, then usually you might have to pay around 20% of the car insurance policy. Check with the insurer for exact details.
Some additional points
- Most car insurers do not offer the Zero Depreciation Cover for vehicles more than five years old
- Usually, insurers set limits on the number of claims you can make in a year. The general limit is 2 claims per year
- If your car insurance policy is renewed every year, then you will have to renew the add-on every year too
Remember, car insurance is all about having a safety net to protect yourself against financial losses in the event of a theft or an accident. Every car owner requires a unique combination of add-ons to make the policy perfect for him/her. Before you buy a policy, ensure that you assess your insurance requirements by looking at the risks faced by your car. Once you have a clear idea about the risks, buying a policy that safeguards you against them can be easier. We hope that you have a better understanding of the Zero Depreciation Cover after going through our article and can choose a better insurance package for your car.