Zero Depreciation Cover for Cars and Its Importance
11 Feb 2019
A car is an asset that depreciates with time. Depreciation has an impact on your claims in case of an accident. One might assume that comprehensive car insurance will eliminate any out of pocket expenses, but you are wrong. Whenever you file a claim for car insurance, the insurance company will determine the amount payable after considering depreciation. This means you will have to pay a portion of the total cost incurred for replacement of parts during repair. If you want to ensure that the impact of depreciation does not reduce your claim amount, you need to opt for a zero depreciation cover.
What is a Zero Depreciation Cover?
For those trying to understand zero depreciation car insurance meaning, it is an add-on policy that covers the depreciation amount deducted on the value of parts replaced as a result of a possible claim under Own Damage Section (Section I). When a car is damaged because of an accident, and you make an OD claim, the insurance company will not reduce the amount of depreciation from the claim amount if you have zero depreciation or nil depreciation cover.
Difference between a standard comprehensive Policy and Policy with add-on depreciation cover
There is an obvious difference between both the types of insurance cover. A depreciation cover will provide the coverage of the claim amount deducted on account of depreciation. In contrast, a standard comprehensive cover will not offer zero-depreciation, and your claim amount will be estimated after deduction of depreciation applicable to the parts as per the vehicle age. If your car is involved in an accident, the standard policy will subtract the amount of depreciation and then pay you the claim amount whereas a depreciation cover will pay the amount including depreciation amount.
To get an idea of the difference in coverage to be provided by the two policies, take a look at the depreciation rates as set by the Insurance Regulatory and Development Authority of India (IRDAI):
n On rubber, nylon, and plastic parts, and batteries – 50% depreciation be deducted,
n On fiber glass components – 30% depreciation be deducted, and
n 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 regular car insurance policy, the insurer only reimburses the depreciated value of car parts replaced, whereas you get the full claim amount with the zero dep car insurance cover.
Is it worth it?
There is no denying the fact that a depreciation cover has advantages over a standard policy, but it comes with a cost. You are paying an additional premium to ensure that you do not have to bear out-of-pocket expenses in case of a claim in the future. Those consumers who do not mind paying a higher premium but want peace of mind should opt for this cover.
Factors to consider before choosing zero depreciation car insurance policy
Even though the zero dep car insurance cover comes with its own set of significant advantages, it may not be wise for everyone to buy it without considering some key factors.
One, the zero depreciation policy can be bought only for relatively newer cars (up to 5 years of age). So, if you have an old car, you may not be eligible for this cover.
Two, the zero dep car insurance policy will prove to be more expensive than a regular car insurance policy in terms of premium. So, it is for you to assess the condition of your car and decide whether an expensive policy is really needed or not.
Three, it is important to know that the zero depreciation car insurance policy allows you to make only a certain number of claims in order to restrict trivial claims for small dents etc.
Should you buy the cover?
If you have a new vehicle, this add-on will be worth the additional cost. There are instances where even the most careful and experienced drivers have ended up in an accident because the other guy was not careful. You never know what will happen on the next turn and this is why it is best to opt for a policy that will provide you with a deprecation cover.
If the additional premium does not pinch you, this is a good cover for any car owner. Consider the benefits of the cover and weigh it with the cost. A depreciation cover will give you complete peace of mind.
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Is there any restriction on the number of claims that can be made under the Zero depreciation cover?
Yes, there is a limit to the number of claims you can make annually if you purchase an add-on zero depreciation car insurance cover. If you exceed the number of claims, then subsequent claims will be entertained as per the policy but you will have to bear the cost of depreciation in them.
Is zero depreciation insurance mandatory for cars?
It is not a mandatory cover, but one should opt for this add-on in order to avail of additional coverage and benefits with your standard car insurance policy.
What is the premium of the zero depreciation add-on cover?
There is no fixed premium for the zero depreciation add-on cover as the premium amount depends on factors such as Insured Declared Value (IDV) of your vehicle, its age, model, etc.
Who should opt for the zero depreciation cover?
The zero dep car insurance cover is best suited for new car owners, inexperienced car drivers, luxury car owners and owners living in the accident-prone zones.
Disclaimer: For more details on risk factors, terms & conditions please read sales brochure carefully before concluding a sale. *The discount amount will vary subject to vehicle specification and place of registration.