What is Zero Depreciation in Car Insurance, and How Does it Work?

The moment you take your car out of the showroom, the value of that car starts to decline. This depreciation impacts your insurance claim because insurance companies base their compensation for accidents or theft on the car's current value or the damaged part.

This is why the concept of zero depreciation in car insurance has emerged as a preferred choice among car owners. So, let’s learn what it is all about and how it works.

What is Zero Depreciation in Car Insurance?

A zero depreciation add-on is an additional option in car insurance, which means the policyholder will not have to pay for the loss of car value.

With this add-on, if your car is damaged in an accident, you can get the full amount for the repairs or replacement of parts without subtracting the depreciation. It can help you save a lot of money. This cover can be used on any car up to 10 years old and utilised twice within the policy period.

How Does Zero Depreciation Cover Work?

Generally, when using the standard comprehensive car insurance policy, the insurer reduces the damaged part’s depreciation value when paying a claim. This depreciation amount differs for each part of the car.

However, when using zero depreciation cover, you do not have to worry about these deductions because the insurance company will take responsibility for repairing or replacing the item.

Let us take an example to understand how zero depreciation cover works.

Suppose your car's windshield needs repair, costing ₹10,000 due to an accident. The insurance company will deduct the depreciation value from the claim amount without zero depreciation cover.

If the standard depreciation for glass parts is 30%, then ₹3,000 (30% of ₹10,000) will be deducted. After applying a standard deductible of ₹1,000, your claim amount would be ₹6,000 (₹10,000 - ₹3,000 - ₹1,000). You will need to pay the remaining ₹4,000 yourself.

In the same scenario, with zero depreciation cover, you will receive  ₹9,000 needed for the windshield repair. The insurer will cover the entire amount after applying the standard deductible of ₹1,000. You will only need to pay ₹1,000, with no deductions for depreciation.

What are the Benefits of Zero Depreciation in Car Insurance Policy?

Adding a zero depreciation cover to your car insurance policy provides several valuable benefits, which are as follows:

• Higher Claim Payouts

While opting for zero depreciation cover is slightly higher, you will be glad to know it has your back in the long haul. This add-on helps eliminate depreciation from your claim, meaning you will be paid more for parts replacement.

• Cost Savings

In the case of zero depreciation cover, you do not have to pay the extra amount out of your pocket during a claim. If this add-on is not selected, the user has to bear the costs of depreciating damaged parts. In the case of a zero depreciation plan, the insurer bears these expenses.

• Reduced Financial Burden

This add-on increases your claim settlement amount, protecting you from paying the depreciated value of damaged parts. If your car suffered extensive damage, the repair costs can be high, but zero depreciation cover helps manage these expenses.

• Enhanced Protection

While the premium for zero depreciation insurance is higher than standard policies, it provides extensive coverage. This insurance offers superior protection against accidents and other risks that could damage your vehicle.

• No Hidden Costs

The insurance company covers all expenses, you will not face unexpected costs during the claim process.

• Preserves Resale Value

By covering replacement and repair costs fully, zero depreciation cover helps maintain your vehicle’s resale value.

What Does Zero Depreciation Add-on Cover Not Include?

While zero depreciation add-on provides comprehensive coverage, there are certain exclusions to be aware of:

• Wear and Tear

Zero depreciation cover does not include damages from regular wear and tear or age-related issues, such as mechanical breakdowns.

• Commercial Use

The policy does not extend to damages if the car is used for commercial purposes, such as taxis or cargo transport.

• Driving Without a License

The cover is void if you are driving without a valid license or under the influence of alcohol or drugs.

• Illegal Activities

Any damages from illegal activities, like racing or committing a crime, are not covered.

• Geographical Limits

It does not cover damages or accidents that occur outside the geographical boundaries mentioned in the policy.

• Consequential Losses

Zero depreciation cover does not address consequential losses, such as loss of income or business opportunities due to an accident or theft.

How is Zero Depreciation Car Insurance Premium Determined?

The premium for zero depreciation car insurance is calculated based on several factors, which are as follows:

• Place of Registration

Premiums are higher in major cities like Delhi, Mumbai, and Bangalore than tier-B cities.

• Vehicle Model and Make

The make and model of your car influence the premium amount. Luxury or high-end cars usually cost more to insure because they require expensive parts and repairs.

• Engine Type

Cars with larger engine capacities generally have higher premiums than those with smaller engines.

• Sum Insured (IDV)

The Insured Declared Value (IDV), the car’s current market value minus depreciation, affects the premium amount. A higher IDV leads to a higher premium.

• Installation of Accessories

Premiums for additional car accessories and features are calculated separately.

• Coverage Type

Comprehensive insurance usually costs more than third-party insurance due to its broader coverage.

• Age of Vehicle

The age of your car impacts the zero depreciation insurance premium.

• Fuel Type

The type of fuel your car uses, whether diesel, petrol, CNG, or electric, affects the premium.

• Add-On Covers

Additional features like personal belongings cover, roadside assistance and zero depreciation add-ons influence the overall premium.

• Policyholder’s Driving History

Your driving record, including past claims and accidents, can affect the premium amount.

• Insurance Provider

Different insurers may offer different premium rates for zero depreciation cover based on their own risk assessments and policies.

• Deductibles

Choosing a higher voluntary deductible can reduce your premium, but you will pay more out of pocket if you make a claim.

Thus, zero depreciation coverage is a crucial additional feature in car insurance. It offers full compensation without deducting depreciation when you file a claim. This coverage is especially advantageous for new vehicles, luxury models, cars that are used regularly, or those in areas prone to higher risks.