Zero Depreciation Car Insurance Policy: Coverage, Claim, Benefits

Depreciation, which refers to the decrease in the value of a fixed asset over time, is a factor that insurers consider when assessing claims. However, with Zero Depreciation Motor Insurance, you can reduce most depreciation costs attached to your vehicle and get a higher claim amount. This article delves into what Zero Depreciation Motor Insurance is and its advantages.

It is an add-on that works only with your Comprehensive Car Insurance policy. Under Zero Depreciation Motor Insurance (Zero Dep), you do not pay for the depreciation of your vehicle or its parts during the claim process. Your insurer covers the total cost of replacing parts without charging you any depreciation-related expenses.For example, suppose you own a brand-new sports bike and get involved in a minor accident that causes damage to your bike's body, which is made of hard plastic. The cost of your damages turns out to be ₹ 10,000. Once you claim the same, your insurer will charge you a certain depreciation rate, say 50%, on the plastic parts. It means that your insurer will pay only ₹ 5,000 in this case, and you will have to pay ₹ 5,000 from your pocket. The depreciation rate can range between 5% and 50% depending on the part that needs replacement and/or the age of your vehicle.However, this depreciation factor does not apply to your claim if you have Zero Depreciation Motor Insurance. Here, the insurer pays the entire ₹ 10,000 in repairs. Also Read: Who needs motor insurance?

Insurance companies follow a standard depreciation table that provides a percentage of depreciation based on the age of the vehicle. Currently, the following depreciation rates are applicable for different vehicle parts.

• There are no deductions for parts made of glass.
• Fibreglass components depreciated at a rate of 30%.
• Parts made of rubber, nylon, plastic, tyres, tubes and batteries depreciate at 50%.
• For all other parts made of metal, including the car's body: The depreciation rate varies based on the car's age.

For the age-based depreciation on metal parts, the current rates are as follows:

• Up to six months: 5%
• Over six months but less than a year: 15%
• More than a year but less than two years: 20%
• Between two and three years: 30%
• Between three and four years: 40%
• Between four and five years: 50%

Note: The depreciation rates mentioned above are applicable now and are subject to change. Verify the rates with your insurer before filing a claim.

In a Zero Depreciation policy, they do not factor in the depreciation of specific car parts during a claim. Due to this, the policyholder can receive a higher claim amount closer to the original cost of the parts.

Zero Depreciation cover typically costs between 15% to 20% of your existing Comprehensive Auto Insurance policy . If your vehicle's Comprehensive policy premium is ₹10,000, adding a Zero Depreciation cover can increase the overall premium to about ₹11,500 or ₹12,000.However, Zero Dep premium can vary depending on your insurer, the type of vehicle you own, the age of your vehicle and the coverage options chosen. Over the long run, the benefits of Zero Dep cover far outweigh the costs involved. Also Read: How to Calculate Car Insurance Renewal Premium?

Although both Comprehensive Car Insurance policies and Zero Depreciation coverage are related, they differ.

• A Comprehensive Car Insurance policy is an extensive policy that covers third-party liabilities, damages to you or your vehicle, damage to the vehicle from natural calamities or loss due to theft, fire, explosion, etc. On the other hand, Zero Depreciation cover is an optional benefit that enhances your existing Comprehensive Car Insurance policy.
• The premium payable for a Comprehensive Car Insurance policy with Zero Depreciation coverage is more than that for the same policy without Zero Dep. However, the policy with a Zero Dep add-on has a higher claim amount since it does not deduct depreciation.
• A Comprehensive Car Insurance Policy that includes a Zero Depreciation cover will consider the depreciation factor of your vehicle's parts and the age of your vehicle. The same policy without a Zero Dep add-on will not consider depreciation.

A Zero Depreciation cover is only available for cars under five years old. On the other hand, a Comprehensive Car Insurance Policy is available for cars up to 15 years old.

Even though it may seem like an added cost, there are several advantages of having Zero Depreciation cover, such as:

• It protects experienced and inexperienced drivers from damages and financial losses from accidents.
• It eliminates the excess cost you would have to shoulder to get your vehicle’s parts repaired.
• It is reasonably priced.
• It enhances your existing Motor Insurance Policy by increasing your scope of coverage.

Before Zero Dep covers the entire repair cost of most of your vehicle’s components, your vehicle can command a higher resale value.

A Zero Depreciation cover is ideal if you want to avoid paying out excess costs from your pocket during the claim process. The add-on cover is more suited to you if:

• You own a luxury car whose parts are expensive to repair.
• Your vehicle is less than five years old.
• You own a brand-new car and are worried about minor damages, such as scratches, dents, bumps, etc.
• If you live in a crowded area, the threat of accidents is relatively higher than in other areas.

Under the current guidelines of the IRDAI (Insurance Regulatory and Development Authority of India), if you do not own a Zero Depreciation cover, your vehicle will be subject to the following depreciation rates:

• Rubber, plastic, nylon, and batteries depreciate at 50%
• Fibre parts depreciate at 30%
• Wooden parts depreciate by 5% in the first year, 10% in the second year, and so on
• Metallic parts tend to depreciate between nil and 50%, depending on the vehicle’s age
• Apart from vehicle parts, the vehicle is also subject to a comprehensive depreciation amount. This depreciation rate is 5% if your vehicle is less than six months old, 10% if your vehicle is between 6 months to a year, and so on
• No depreciation applies to your vehicle’s glass parts.

Also Read: Things You Must Know To Apply for Car Insurance Online

The Zero Dep add-on is subject to certain exclusions. It would help to read your policy wordings to know these exclusions. Typically, they include:

• Replacement of certain vehicle parts Zero Dep cover does not include all vehicle parts for replacement. For instance, your vehicle’s tyres, tubes, consumables such as oil, nuts, bolts, and other parts are usually not part of the optional cover. You would have to pay to repair these parts out of your pocket.
• Vehicle breakdown The Zero Dep add-on does not provide financial cover if your vehicle suffers from a mechanical breakdown. Similarly, any damage caused to your engine because of water ingression or oil leakage is not considered under Zero Dep.
• Total loss or theft of your vehicle Insurers designed the Zero Dep add-on to provide higher compensation for your vehicle’s parts. So, this cover does not compensate you if your vehicle undergoes irreparable damage or someone steals it.
• Vehicle age exclusions The add-on may not be available for older cars or vehicles that exceed the age limit specified by your insurer.

These are some limitations to consider before opting for Zero Dep cover.

• You can make only two claims during the policy tenure. However, you can increase the number of claims by paying an additional premium.
• This add-on does not apply to vehicles that are over five years old.
• Buying an insurance policy with a Zero Depreciation add-on generally provides coverage for that vehicle only. If you have multiple vehicles, you must buy separate Zero Depreciation add-ons for each vehicle.
• The add-on can become a needless expense if your vehicle predominantly comprises parts that accrue the least depreciation.
• You cannot buy Zero Dep as a standalone policy.

Also Read: Exclusions in Motor Fleet Insurance Policy

• Zero Depreciation cover takes away a significant cost associated with your vehicle.
• It provides an extra layer of support over your existing Comprehensive Motor policy. However, you cannot purchase it without an existing Motor Insurance policy.
• The optional cover gives you a higher settlement amount during the claim process.
• The add-on typically covers depreciation associated with your vehicle’s plastic, metallic, rubber, nylon, wooden and fibre parts.
• It is more suited to brand-new vehicle owners and those who own luxury vehicles.
• Generally, you can make two claims during your policy tenure under Zero Dep cover.