What does a standard car insurance policy offer?
Car insurance covers losses one might incur if a car is damaged or stolen. But there’s a catch. When a car is damaged, you are not entitled to 100 percent reimbursement of the expense incurred on the parts replaced. Depreciation, or the normal wear and tear that car parts undergo, comes into the picture. As per norms, only the residual value, i.e. the remaining value of the part after deducting depreciation, will be paid for by the insurance company. For eg: if a replaced part costs Rs 5,000, but 50% is the applicable depreciation rate, then you will only get a pay-out for Rs 2,500 only.
What are the rates of depreciation?
Depreciation means loss in the value of an asset due to use. Different materials and parts of a car have different rates of depreciation assigned by the insurance policy. The standard rates are:
50% for parts which have high wear and tear like as plastic/rubber parts of the car, battery, tyres/tubes etc.
30% for fibre glass parts
0-50% for metallic parts, depending on the age of the vehicle
Related: Car insurance: What is covered and how much? [Infographic]
What makes Zero Depreciation cover a good choice?
If you had a choice, wouldn’t you prefer to be compensated for the entire cost incurred on replacing damaged parts? High rates of depreciation will reduce the insurance claims, particularly for plastic parts that are prone to severe damage in case of an accident.
The Zero Depreciation Cover allows you to do just that. You receive full claim without any deduction for the depreciation on the value of replaced parts.
What is the additional premium payable for a Zero Depreciation Cover?
Premium paid for insurance depends on the Insured Declared Value (IDV) of the car, which is essentially the maximum amount you can claim in case of total loss or total constructive loss of your car, or in case it gets stolen or damaged beyond repair, within the policy period.
While car insurance premium generally depends on the car’s age, model and location, the additional premium for the Zero Depreciation rider could be up to 20 percent of a standard car insurance policy.
Does it make sense to pay a higher premium for this?
Zero Depreciation Cover makes sense –
If you have a new car - The minute your car comes out of the showroom, depreciation comes into play. So, if you damage your car the next day, you can only claim a fraction of the cost to replace plastic parts etc.
If you have a high end luxury car – Each spare part of a luxury car costs an arm and a leg. So, why not have the option of claiming the full value of a replaced part?