If you own a car or are planning to buy one, then you must be aware of the concept of depreciation. It refers to a gradual decrease in the value of your car due to the daily wear and tear the car goes through.
Depreciation can have a considerable impact, especially when it comes to the price and claim amount of your comprehensive car insurance policy.^ Hence, you should know how to calculate it, for which a car depreciation calculator can come in handy.
Let’s understand the concept of depreciation and learn more about car depreciation calculators.
Understanding Car Depreciation and How to Calculate It
A car depreciation calculator is an online tool that helps you give a quick estimate of your four-wheeler’s current depreciation rate. Understanding the same can help you get a clearer idea of the present worth of your car and also understand its Insured Declared Value or IDV. For the uninitiated, the IDV refers to the maximum amount that you can receive from your insurance company if your car were to go through irretrievable theft or a total loss.^
To know
how car insurance IDV is calculated, you will have to subtract the present depreciation rate of your car from the manufacturer’s selling price.
The depreciation of your car can be manually calculated in the following two ways, though there are many other methods:
1. Prime cost method
Cost of running the four-wheeler × (Days you have owned the car)/365×(100%)/(Effective life in years)
2. Diminishing value method
Value of the car when bought×(Days you have owned the car)/365×(200%)/(Effective life in years)
A car depreciation calculator can ease the process by automating the process.
How to use a car insurance calculator?
To know the IDV and the depreciation of your car insurance using a calculator, follow the given steps:
- Visit a reliable website providing a car depreciation calculator.
- Enter the ‘ex-showroom’ price of your car.
- Select the year in which you registered the car.
- Submit by clicking on the ‘Calculate IDV’ button.
You will get an IDV estimate based on the information you have provided.
Rate of Car Depreciation in Insurance
To ensure that depreciation evaluation is fair and standard across insurance companies, the Insurance Regulatory and Development Authority of India (IRDAI) has laid down depreciation rates for all cars.
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These rates depend primarily on the age of the car. Let’s look at them:
| Age of the car |
Depreciation rates |
| 0-6 months |
5% |
| 6 months - 1 year |
15% |
| 1-2 years |
20% |
| 2-3 years |
30% |
| 3-4 years |
40% |
| 4-5 years |
50% |
| Above 5 years |
Decided as per the insurer and policyholder’s agreement |
Car depreciation rates also apply separately to different car components. These include:
| Components of the car |
Depreciation rates |
| Rubber, nylon, and plastic parts; tyres and tubes; batteries; airbags |
50% |
| Glass components |
Nil |
| Fibreglass components |
30% |
| Paintwork |
50% |
These rates are subject to change as per IRDAI’s directives.
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How Does Car Depreciation Affect Your Car Insurance Plan?^
When you raise a claim under your car insurance policy for damages, the claim is usually paid after deducting the applicable depreciation rate according to the age of your car.
For instance, let’s assume Mr Navin raised a car insurance claim for damages to his 2.5 years-old car. The total bill for the repairs came to Rs 15,000. The rate of depreciation applicable to the claim amount would be 30%, which would be Rs 4,500. So, the claim amount he received was Rs 10,500 (15,000 – 4,500), excluding any applicable policy deductibles.
If you want to receive the full claim amount without any deduction as per the depreciation rate, you can opt for the zero-depreciation add-on. This add-on is only available with a
comprehensive car insurance plan and helps you receive the maximum claim value when you raise a claim for damages. If you opt for this add-on, your premium can increase. However, it can prove to be helpful in the long run since you get the full value of the claim amount when you raise the claim.
What Factors Affect the Depreciation Value of The Car?
Many factors can affect the depreciation value of your car and consequently, its IDV. Here are a few factors to keep in mind:
Age of the car
As mentioned earlier, the older the car, the higher its depreciation rate.
Fuel efficiency
Cars with better fuel efficiency have better resale value than their counterparts.
Upkeep of the car
If you keep your car well-maintained, you can expect a lower depreciation value and a better resale rate.
Make and model
Compact, smaller cars tend to have a lower depreciation value than elite, expensive cars.
Knowing how to use a car depreciation calculator in India can help you in many ways. To know how you can optimise it for your insurance plan, do reach out to an agent or a car insurance company.
*Standard T&C Apply
^Claims are subject to terms and conditions set forth under car insurance policy.
#Visit the official website of IRDAI for further details.
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.
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