What is Depreciation?

Did you know that a brand new car, once has been bought and taken out of the showroom is no more of the same value as it was inside the showroom! It’s lesser!That is depreciation for you. Depreciation is quite simply the decrease in value of things or ‘assets’, as they get older. For example, a newer car is obviously priced higher than an older one. Similarly, there is a certain depreciation associated with all the materials like glass, plastic, metal that make up your car.

What is Zero Depreciation Car Insurance?

Zero depreciation also known as Nil depreciation or Bumper to Bumper car insurance is a car insurance policy that leaves out the depreciation factor from the coverage, thus giving you complete cover. It means that if your car gets damaged following a collision, no depreciation is subtracted from the coverage of wearing out of any body parts of car excluding tyres and batteries. The insurance company will pay out the entire cost of the body part for replacement.

Zero depreciation car insurance policy offers 100% coverage for all fibre, rubber and metal parts without deduction of depreciation. It does not cover engine damage due to water ingression or oil leakage. Any mechanical breakdown, oil change or consumables are also not covered in this policy. The policy comes with a limit on the number of claims you can put in a year.

Zero depreciation costs anywhere between 15-20%of the standard premium and is a MUST BUY for all new or relatively new (up to 5 years) cars.

Zero depreciation car insurance proves to be beneficial to:

People with new cars

People with luxury cars

New / Inexperienced drivers

People living in accident-prone areas

If you worry about small bumps and dents

If you have a car with expensive spare parts

The Role of Zero-Depreciation during Claim Settlement

If you check the fine print of a comprehensive plan, you would know that the depreciation deducted on many items amounts to quite a lot.

For example, the Insurance Regulatory and Development Authority of India (IRDA) has ordained that:

-On rubber, nylon, and plastic parts, and batteries – 50% depreciation be deducted,

-On fiber glass components – 30% depreciation be deducted, and

-On wooden parts – depreciation be deducted as per the age of car (such as 5% in the first year, 10% in the second year, and so on.)

In case you make a claim, with a basic car insurance policy, the insurer only reimburses the depreciated value of car parts replaced.

This is irrespective of the actual cost. If your car is brand new, this can turn out to be really expensive!