Let’s suppose you had bought a car ten years before for INR 8 lakh. Now today, you do some repairs in that car for INR 50000. So if you have a comprehensive car insurance
policy, then you should get the total amount of INR 50000 as the claim amount from the insurance company.
But that is not the case practically. The value of your car will have depreciated, and hence you will be given an amount proportionate to the depreciated value. But for that, we need to understand what depreciation is.
What is depreciation?
Depreciation is the reduction in the value of an asset due to aging, wear and tear and obsolesce. Suppose a car is worth INR. 8 lakhs today and the depreciation rate is 10%, then its value after one year shall be INR 7.2 lakhs, and the amount will keep reducing every passing year. This amount will form the basis of what is IDV
for your insurance policy and also the claim amount.
What is Zero Depreciation Cover?
Under zero depreciation cover, the amount of the car will be fixed and shall not depreciate further. This means that it is most likely that the amount you spend for damages or repairs shall be the same that the claim amount you will receive, and the expenses to be met out of your own pocket shall be reduced significantly.
Isn’t Comprehensive policy the same as zero depreciation policy?
Under the comprehensive policy, the depreciation is reduced along with other costs every year, and hence the claim amount is reduced when you put forward one in case of damages or losses suffered. Zero depreciation is one of the types of car insurance
that takes a step ahead and makes sure that the value of the car is intact and its benefits are experienced by policyholders.
Points to be considered before buying a zero depreciation policy
Now we know what zero depreciation policy is, but what are the points to be taken care of if we buy one of these? They are as follow:
- Applicable on new cars only
We need first to see whether a zero depreciation policy is available for our car or not. This is because such policies are available for cars up to the age of 3 years only. Hence, if you own a car that is more than three years old, then you have no option then to choose another policy.
The premium to be paid for a zero depreciation policy is higher than that under the standard policy. On average, the premium under these policies is 15-20% higher than the standard policies.
- Limit on number of claims
The number of claims admissible under the zero depreciation policy is limited. The number of claims varies from one company to another; hence it is necessary to confirm the same with your policy provider.
Requirements of IRDA
Insurance Regulatory and Development Authority (IRDA) has prescribed the rates of depreciation in normal cases, which are to be followed by every insurance company operating in India. These are as follows:
Is zero depreciation required?
|Rubber, Plastic, Nylon parts and Batteries
|Wooden parts(depending on age)
||5% for the first year, 10% for the second year, and so on
The zero depreciation policy, also known as bumper-2-bumper policy or ‘Nil Depreciation Policy,’ is advisable to almost all new car owners because the cost of repairs is pretty high in new cars. But the higher premium factor is something that bothers quite a few. But it is advisable especially to the below specified category of people.
- People having luxury cars.
- If you live or frequently drive in areas prone to dangers like floods or hilly regions or such other situations
- If you are quite unsure of a driver’s driving skills, it is always better to opt for one as you may end up paying more repairs otherwise.
- If your car’s spare parts are pretty expensive
- If you are someone who gets really worried about dents and other stuff
Some people also ask “is zero depreciation required or not”, one accident is enough to make people buy it.
- “My car is one year old. Is my IDV decided based on its original value at the time car was bought if I buy zero depreciation policy?” asks Lakhan
No, the depreciated value at the time of buying the policy is taken to decide the IDV of zero depreciation policy when it is bought.
- Is the age of the car the only factor to determine the premium amount?
No, the amount of premium is decided on various factors like engine type, cover type, fuel type, etc.