Zero depreciation in car insurance is one of the many different riders that you can opt for when you purchase a car insurance policy. But not many people are aware of the importance of this rider. If you too have come across this option while buying a car insurance plan, and if you’ve skipped past this rider, you may have made a costly mistake.

That’s because a zero depreciation cover helps you avoid depreciation cuts when you make a claim on your policy. Too much jargon? Not to worry. We can always begin at the basics and get a better look at what this cover entails.

Here’s everything you need to know about what zero depreciation in car insurance is, and how it can help minimise your out of pocket costs in the event of an insurance claim.

But first, what is depreciation?

Pick any asset you own. Like your car, for instance. Say you purchased it at Rs. 10 lakhs. Now, if you were to sell it 3 years later, you'd certainly sell it for less, right? Maybe for ₹6 lakhs or so. This is depreciation.

To define it more technically, depreciation is the loss in the value of an asset over time, due to regular wear and tear. The concept of depreciation is applicable to houses, cars, machinery, and practically every other asset — except land.

So, coming back to cars, irrespective of whether you use your car or not, it starts to lose its value as soon as it is driven out of the showroom. The rate of depreciation that’s applicable on a car primarily depends on its age. However, it can also depend on the type of component that is being replaced.

Here’s a table showing the different depreciation rates applicable for a car, as decided by the Insurance Regulatory and Development Authority of India (IRDAI).

For specified parts:

For all other parts:

When you make a car insurance claim, the insurer will determine the rate of depreciation applicable to your vehicle based on this table. Your car’s age and the type of component being replaced will be considered. And then, the insurer will deduct the amount of depreciation from your insurance claim amount before it is paid out to you.

The bottom line is that your claim amount will be subject to a depreciation cut. But zero depreciation in car insurance can help you avoid this.

What is zero depreciation in car insurance?

A zero depreciation cover is an add-on rider that you can opt for when you purchase a car insurance policy. You need to pay a nominal additional premium for this rider. But then, this rider ensures that the depreciation factor is not considered when you make a claim.

So, you essentially receive the entire amount that you claim, without any reductions due to depreciation whatsoever.

How does zero depreciation in car insurance work?

Now that you have an idea of what the meaning of zero depreciation in car insurance is, let’s quickly take a look at how it actually works in a claim.

Let’s say that you own a car that’s about 4 years old. Due to an unfortunate accident, the bonnet of the vehicle is badly damaged and now needs to be replaced. Let’s assume the cost of replacement comes up to ₹20,000.

So, you file a car insurance claim with your insurer for this amount.

Here are some points to note here.

• The depreciation on this part is calculated at 25%, since the car is not more than 4 years old.
• The depreciation value comes out to be ₹5,000 (i.e. ₹20,000 x 10%).
• This means the actual value of your bonnet would be just ₹ 15,000.

Without a zero depreciation cover:

If you don’t possess the zero depreciation cover, you will only receive ₹15,000 from the insurer on account of the depreciation factor. This may not be enough to purchase a new bonnet, and you will have to spend the rest of the money out of pocket.

With a zero depreciation cover:

On the other hand, let’s say that you possess a zero depreciation cover. In that case, you will be entitled to receive the entire claim amount of ₹20,000 from your insurer without any depreciation cuts.

Want to know more about how much you can save with this add-on cover? Here’s a table showing the impact that a zero depreciation cover can have on your car insurance claim.

For specified parts:

For all other parts:

What are the advantages of zero depreciation in car insurance?

A higher claim amount is not the only benefit you get by opting for a zero depreciation cover. You can also enjoy a plethora of other advantages. Let’s take a look at some of the most important ways in which a zero depreciation cover can help you.

It offers additional coverage

The zero depreciation add-on enhances the coverage that you receive for your car over and above the base insurance plan. By eliminating depreciation completely, the cover maximises the claim amount that you receive from your insurer.

It reduces your out of pocket costs

The zero depreciation add-on helps keep your out of pocket costs low, if not eliminate it completely. This reduces your financial burden significantly and helps you save a lot of money in the case of an accident.

It comes with a nominal additional premium

The additional premium that you’re required to pay towards the zero depreciation cover is usually very nominal when compared to the benefit that you would get to enjoy.

So, should opt for a zero depreciation cover?

If you’re still on the fence about getting zero depreciation in car insurance, you may be missing out on quite a bit. To make your decision easier, check out the scenarios listed below. If you fit into any of these categories, a zero depreciation cover can definitely benefit you.

• If you have recently bought a new car
• If you have luxury cars or sports cars
• If you drive in areas that are prone to accidents
• If you are not a very experienced at driving cars
• If you want to reduce or eliminate out of pocket costs
• If you own a car with expensive spare parts

Things you should know about before opting for a zero depreciation cover

Now, there are a few key things that you need to be aware of before opting for zero depreciation in car insurance. This can help you make a more informed decision.

• Zero depreciation covers are only available for cars that are less than 5 years old.
• The number of zero depreciation claims that you can file in a year are limited, based on your insurer’s terms and conditions.
• The cover does not include consumables and other compulsory deductibles.
• Zero depreciation add-on doesn’t cover engine damage due to water ingress or oil leakage.
• The add-on doesn’t cover damages that occur due to driving under the influence of drugs, alcohol, or other intoxicating substances.

Summing up

Zero depreciation in car insurance is a very useful add-on cover that can help eliminate or reduce your out of pocket costs in the case of an insurance claim. Considering the fact that the benefit it offers far outweighs the cost, it is a smart choice to opt for the cover whenever possible.

Frequently Asked Question

1. What is a zero depreciation car insurance policy?

Zero depreciation car insurance policy is an optional add-on cover for car insurance that can be customized to your needs. With a zero depreciation add-on cover, you are exempted from paying for depreciation during insurance claims, resulting in long-term cost savings despite a slightly higher premium.

2. What is the benefit of zero depreciation car insurance?

With the zero depreciation cover, the claim amount will be paid to you in full by your car insurance company, without accounting for any cuts due to depreciation.

3. Is zero depreciation insurance worth buying?

Yes, of course. Zero depreciation insurance is definitely worth the additional premium that you’re required to pay towards it. The benefit that it offers is quite significant, seeing as you get to receive the entire amount of the claim without any depreciation cuts.

4. What is difference between comprehensive and zero depreciation insurance?

Comprehensive insurance is a type of car insurance that provides coverage for damages to your own vehicle as well as third-party liabilities. It covers damages caused by natural calamities, accidents, theft, and other unforeseen events.

On the other hand, zero depreciation insurance, also known as "bumper to bumper" or "nil depreciation" insurance, is a type of car insurance that provides coverage for the full cost of replacement of parts without any depreciation. This means that if your car is damaged in an accident, the insurer will reimburse you the full cost of replacing the damaged parts without any deductions for depreciation.

5. What is not covered in zero depreciation car insurance?

While a zero depreciation car cover offers protection against depreciation during insurance claims, it does not provide coverage for engine damage caused by oil leakage or water ingression. Additionally, standard wear and tear of car components like clutch plates, tyres, bearings, etc., are not covered under zero depreciation car insurance.