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Zero Depreciation Insurance: Is It a Good Deal?

All is well as long as you have auto insurance. It would be good enough to cover the statutory requirements and financial losses in case minor damages to your car. but when it comes to actual claims, the car insurer might use a complex formula. This might not be quite what you expected when you took up the Car Insurance in India. Attribute it to a misunderstanding of insurance parlance or a wrong choice; it is going to weigh fairly heavily on you financially. One of the factors that could have such a huge effect that you would be forced to pay a huge out of pocket expenses despite having an insurance policy is the zero depreciation. It is in your best interests to understand it, how it works etc.
black Mercedes-Benz

What is depreciation?

Depreciation in this context is nothing but the decrease in the value of the car as it gets older. It goes without saying that the depreciation will be less for a new car when compared to an old car. Likewise, you must also understand that the car is made up of different components made up of different materials. In such a case, you will find that the depreciation rate will vary for different components of the car based on whether it is a steel part which is less susceptible to damage or a plastic part which is more susceptible to damage. In this light, it is common for car insurance companies offering insurance coverage to calculate the claim amount after the depreciation has been calculated for the vehicle in question. Car insurance renewal is also done after the calculation of the depreciated value of the car.

What is Zero Depreciation?

Zero or nil depreciation refers to bumper to bumper car insurance. This means if you hold a zero depreciation Car Insurance in India, you would be getting a complete cover for your car minus the depreciation factor. In other words, when you are seeking a claim that does not fall under any of the exclusion clauses, you will be reimbursed completely without subtracting the depreciation calculated for the wearing out of any part of the vehicle, be it, plastic or steel excluding tires and batteries.

Is comprehensive coverage and Zero depreciation one and the same?

No, comprehensive coverage is quite different from zero depreciation.  The comprehensive coverage Car Insurance in India will settle claims completely only after depreciation is calculated at certain rates and deducted on many items that include

  • 50%deoreciation on rubber, plastic parts, nylon and batteries
  • 30% depreciation on fiberglass components
  • 5% for the 1st year, 10% for the second year so on and so forth for wooden parts.

This is approved by the IRDA, and when you make a claim on this standard policy, you would only receive a reimbursement that is equal to the depreciated value of the part irrespective of the actual cost for replacing the part. But in the case of zero depreciation policy, you will be reimbursed with the actual cost that is required to replace a part, be it, plastic, wood or fiberglass when you go in for a claim.

Comparison of Normal cover and zero depreciation cover

If you have to understand the difference between a standard comprehensive policy and a Zero depreciation policy before you think of buying a new one or Car Insurance renewal, it can be expressed as follows.

Parameters Comprehensive cover

(standard with DEP)

Zero Depreciation Cover
Claim settlement Claim amount equals the current value of the vehicle which factors depreciation Settlement coverage that equals cost without considering depreciation value
premium Low,  yet varies from insurer to insurer Little higher than the standard policy
Cost of repairing

Plastic fiber

the policyholder has to pay more as out of the pocket costs An insurance claim will settle the maximum if not all costs
Age of the car Covers all cars that are less than 15 years old Covers only new cars. In the case of some insurers, it is up to 5-year-old cars.

However, you can avail Zero depreciation benefits for cars that are more than 5 years old, offline. It also mandates the re-registration of the car after 15 years.  you also stand a chance to bag Zero depreciation policy after your car has crossed the five-year mark on the basis of customer loyalty or no claims made during the entire period. But it is solely the discretion of the insurer.

Zero depreciation cover costs

Having said that the Zero Depreciation policy offers 100% coverage, you might want to know how much it would cost for a Zero Depreciation Car Insurance in India and whether it is worthwhile because the claim is a rare happening while the premium you would have to pay is a constant each year.  In this light, you would be able to note that the cost of the premium is just 15-20% more. But, the coverage you get is much more than any of the standard car insurance in India.

What are the factors that can affect the Zero depreciation premiums?

You would have understood that by paying a little higher premium you would get more coverage with a Zero depreciation Insurance plan. However, there again the premium costs could be a greater percentage or just a smaller percentage more than the standard policy depending on certain factors. The factors that can influence the premium costs  either way includes

  • The type or model of car
  • The age of the car
  • The location- whether it is a metro or a non-metro.

You may consider paying a lesser premium on Car Insurance renewal with zero depreciation in case you are relocating to a non-metro from a metro.

Zero depreciation  add-on cover

The Zero depreciation Car Insurance in India offers innumerable benefits to

  • People who have bought a new car
  • Who have bought and use a luxury car
  • Who have the cars driven by either new, inexperienced or multiple drivers
  • Those who live in accident-prone areas because it exposes them to high chances of wrecking their vehicles.
  • Those who get worked up even when there are just small bumps and dents on the car
  • Those who have cars that are known for their expensive spare parts. When the cost of spare parts is high, the depreciation would also be high. This will result in a huge loss when you make a claim for replacement of parts if you do not have a zero depreciation cover.

You may even think of opting for Zero depreciation add-on policy considering the benefits at the time of Car Insurance renewal.

Exclusions

Before you go gaga over the benefits that you stand to gain when you opt for a zero depreciation policy cover after having gone through the highlights and the benefits it can offer for you as an owner of a car, it is indeed important to take a look at the  exclusions, that would make even owning a zero depreciation policy worthless include

  • Damage to the engine due to ingression of water
  • Engine damage due to oil leakage
  • Mechanical breakdown of any kind
  • Oil changes and consumables
  • Cost of replacement of tires and batteries.

Added to these there is a limit on the number of claims you can put in a year. This is because when you are going to get complete coverage, the risk for the insurer increases because if you keep claiming for damages quite often due to inexperienced driving, the insurer cannot keep reimbursing in full each time. This is exactly why there is a limit on the claims. The limit varies from insurer to insurer.

Is zero Depreciation add-on the best deal?

Having enumerated and taking into account all the benefits that can accrue when you choose to have Zero depreciation as an add-on to the car insurance policy, it is indeed right to conclude that it is the best deal one could get.  It is definitely the best in terms of parameters such as coverage and benefits.

However, in order to ensure that you are able to gain the maximum benefits it has to offer because it also involves high costs, it is important to use it appropriately. For example, if you keep claiming for repairs for which you can pay out of your pockets such as small dents and scratches you might cross the limit laid and night end up paying heavily in the case of a major accident. It is therefore important that you do not go overboard when making the claims.

Similarly, the comprehensive coverage you get is a result of the high premium you are paying. Therefore, it is important to take a careful decision after weighing the trade-offs between an ordinary/standard policy and the Zero depreciation add-on costs before taking a decision.

To sum up, the Zero depreciation add-on is a worthwhile investment for those who buy a new luxury car and for those car owners for whom the extra premium one has got to shell out does not affect his finances in any way.