Anybody dealing with car insurance is bound to come across the term, ‘depreciation’ in regards to their car insurance policy. In simple terms, it refers to the loss of value of the car or other accessories over time due to various factors like age, general wear and tear, obsolescence, etc.
It is a no-brainer that a car is a depreciating asset. Its value decreases over time. The same holds true for its various accessories that you might have purchased for your car.
In case, your car is totaled or destroyed beyond repair, you are paid the current value of the car by an insurance company. But if you desire to get the cost price of your car, you should opt for a zero depreciation cover. Here, we would understand the term and its various aspects.
What is zero depreciation cover?
A zero-depreciation cover is available as an add-on to your comprehensive car insurance policy. It is a highly recommended cover for almost all policy owners. It protects your car against all physical damages as the insurance company would pay you the invoice amount and not consider the depreciation element as is the norm. One can buy this add-on at the time of purchasing a policy for a new car or at the time of renewing your Car Insurance Policy. This add-on is not available for a car older than five years.
The add-on is highly recommended as it eliminates the depreciation element and saves any possible out-of-pocket expenses from the owner in case of any car mishap.
How is depreciation calculated?
The Insurance Regulatory and Development Authority of India has laid down the rules, basis which the cumulative depreciation of a car is calculated. The depreciation rates for various car components are as follows:
- The depreciation rates for car batteries and rubber, nylon and plastic parts are at 50%.
- Fiberglass components depreciate at 30%
- Wooden parts depreciate by 5% in the first year; 10% in the second year and so on.
Benefits of zero depreciation cover
There are several benefits attached to purchasing a zero-depreciation add-on cover for your car. Few of them are:
- Saves money- The biggest advantage of this add-on cover is that it helps limit your out-of-pocket expenses at the time of a claim since the element of depreciation is ruled out. You are not required to shell out money just because your car had got old.
- Procure a higher claim amount- You inevitably receive a higher claim amount with this add-on cover that nears the actual cost of purchase and repair. This saves you from what might have been a huge financial burden despite being the car insurance providing adequate cover.
- Adds value to your base policy –With zero depreciation cover, you get the reimbursement based on the value that you paid. Hence, your investment gets almost nil. Evidently, it adds plenty of value to your base policy.
- Peace of mind – Zero depreciation cover gives you the ultimate peace of mind as you know that your back is truly covered at all times. You know that you will get your actual investment reimbursed at the time of a claim and this can be truly satisfying and soothing to your mental health.
Things not covered under the zero-depreciation cover
Like any insurance cover, the zero-depreciation cover has its exclusions. Few of them are:
- No valid driving license- If you do not have any valid driving license; then you cannot claim the benefits of zero depreciation cover at the time of filing a claim.
- Influence of drugs or alcohol- At the time of the car accident, if you were under the influence of any drug or alcohol; then your claim would not be upheld and would get rejected.
- Car is over 5 years old – As already stated, the zero-depreciation cover is not available for cars over five years old. Hence, even if you had this cover when you purchased a new car; it will be removed from your car insurance policy after five years.
- Compulsory deductibles not covered- Compulsory deductible is an important part of the car insurance plan. It is the mandatory amount that you must pay at the time of making a claim. This amount is not covered by the zero-depreciation add-on and must be paid every time you make a claim.
- Mechanical breakdowns and engine oil costs not covered- The normal wear and tear, any mechanical breakdowns and cost of various fluids like engine oil, coolant, clutch oil, etc. are not covered under the plan.
Cost of zero depreciation add-on cover
The zero-depreciation add-on cover is available with a comprehensive car insurance policy and costs fifteen percent of the premium of your base policy. The amount is quite nominal given the huge savings and benefits that it brings you.
Bottom line
No matter what is the make and model of your car, getting a zero-depreciation cover makes your car insurance plan worthwhile and ensures that you get the full worth of your investment.
