A car is a depreciating asset. And depreciation has a direct effect on the claim settlement amount in the realm of vehicle insurance. The value of a car is depreciated by 20% the moment it leaves the showroom. And it depreciates further with each passing year.
You might assume that a comprehensive policy will eliminate your out-of-pocket expenses; in that case, you would be mistaken. At the time of claim settlement, auto insurers employ a formula to calculate the payable amount.
The cost of depreciation on parts is deducted from the final amount and you might end up paying a large portion of the overall costs. You can also know the premium amount by adjusting the premium using an online Car Insurance Calculator.
However, you can go for a zero depreciation cover as an add-on in your comprehensive car insurance policy. It is not available in a third-party insurance policy.
What Does Zero Depreciation Cover Mean?
As the term implies, a zero depreciation cover ensures comprehensive cover without considering the depreciation factor. In case your car is damaged due to a collision, and then you file the claim, then you will get compensation for the entire amount.
Table with rate of depreciation for all the parts of the vehicle including wood:
|Age Of the Vehicle||Depreciation (in %)|
|> 6 months||Nil|
|> 6 months and < 1 year||5|
|> 1 year and < 2 years||10|
|> 2 years and < 3 years||15|
|> 2 years and < 4 years||25|
|> 4 years and < 5 years||35|
|> 5 years and < 10 years||40|
|> 10 years||50|
For instance, if you file a claim of 10,000 rupees for a four-year-old car, then the amount payable will not be more than Rs. 6500. And for this reason, it is imperative for you to have a get depreciation cover as an add-on benefit.
Who should Consider Option for Zero Depreciation Cover?
It will be a wise decision to opt for zero depreciation cover if you own a new car. It is not recommended only for amateur drivers because they are more vulnerable to damage or collision.
However, the experienced drivers can also not be sure of avoiding the accidents. Road mishaps are unpredictable. Considering this, zero depreciation is a good option provided the cost of additional premium does not pinch. You can buy car insurance online and select the zero depreciation rider benefit.
How is Zero Depreciation Different from the Basic Comprehensive Policy?
A standard comprehensive policy will take into consideration the depreciation factor and the estimations will be based on the present market value of the vehicle.
On the other hand, a zero depreciation rider will ensure the full settlement amount irrespective of the depreciation factor. In short, it will not let the depreciation cost make a dent in your savings.
So, if you lodge a claim for an accidental damage, a comprehensive car insurance policy will foot the costs after adjusting the depreciation value. Whereas, if you have zero depreciation cover the insurer will compensate the damage without taking into consideration the current market value of your car.
Is It Worth Buying Zero Depreciation Cover?
Undoubtedly, the zero depreciation cover offers more benefits in comparison to the standard policy. But there is a cost attached to every good thing.
To start with, a car insurance policy with zero depreciation cover will cost at least 20 percent more than a basic policy. It implies that you are paying a considerably higher premium to ensure that a not even a single penny is paid out of your pocket at the time of claim settlement.
Simply put, it is the amount that you pay in advance to ward off the future costs.
It could be a deal breaker for people who are looking for an affordable car insurance policy with nominal premium costs. Conversely, the prospect of zero depreciation cover will lure people who are comfortable paying a higher premium cost to ensure their peace of mind.
But some insurers can put a limit to the number of claims that you can make in a year. Otherwise, people might end up filing claims for even small damages as there is no cost attached to it.
Moreover, only new car owners whose car is lesser than 5 years old are eligible to get the zero depreciation cover. You cannot opt for this rider if your car is older than 5 years. Also, it is not worth to spend extra money on a car that is older than 5 years.
But if we compare the two, zero depreciation cover is a better option for the following reasons-
- Full value cover is provided at the time of claim settlement and the depreciation value doesn’t make any difference. And the claim amount of a normal car insurance policy will be based on the current market value and the depreciation factor will step in.
- As the zero depreciation offers additional benefits, the premium is also on a higher side in comparison the basic policy.
- In a basic policy, you have to bear the repair cost and the fiber parts. Whereas, with a zero dep policy, the cost of plastic fiber and repairs is taken care of by the insurance company. For instance, you bought the Bajaj Allianz car insurance comprehensive plan with zero depreciation benefit. And you made a claim for damages resulting due to the collision, in that case, the entire cost will be borne by Bajaj Allianz only.
- Taking into consideration the car’s age, a basic car insurance plan will cover old cars also. But zero depreciation rider benefit if offered only to the new cars, which are lesser than 5 years old.
- For basic cars, a standard car insurance policy is sufficient. But for luxury and sports cars, a zero depreciation cove is recommended because of the huge repairing costs and expensive spare parts.
Therefore, opting for zero depreciation is recommended for such vehicles.
Over to you!
Undoubtedly, a zero depreciation policy is a better option as compared to the normal car insurance plan because of the benefits it offers. If not, be prepared to pay the depreciation value on parts of your car with a normal car insurance policy.