Zero Depreciation Cover in Car Insurance: Step By Step Guide

Zero Depreciation

Zero depreciation is also called the Nil Depreciation cover. You can take by paying an additional premium. When you file any claim on the occurrence of any damage then the company pays you claim amount without deducting any depreciation.

Suppose you have two cars; one is a brand-new car and another is a one-year-old car. Manufacturer, Model, and each and everything is the same for both. But can you guess what will be the current market value of both vehicles?

Of course, a new car has a higher value than a one-year-old car. Why is it? It is because of depreciation only.

The material used in car, like plastic, wood, metal, glass, fiber and others, etc has a certain value which depreciate as time goes and this gradual reduction in value is called depreciation.

Depreciation Rates

As per IRDA following depreciation rates are applicable for the parts of car

All Plastic parts, Nylon, Tyre and Tubes, Rubbers, Batteries and Air bags – 50%

All Fiber Glass components – 30%

Parts made of Glass – Nil

Metals and other parts including wooden parts as per the bellow chart:

Not exceeding six monthsNil
Exceeding six months but not exceeding 1 Year5%
Exceeding 1 year but not exceeding 2 years10%
Exceeding 2 years but not exceeding 3 years15%
Exceeding 3 years but not exceeding 4 years25%
Exceeding 4 years but not exceeding 5 years35%
Exceeding 5 years but not exceeding 10 years40%
Exceeding 10 years50%

Benefits of Zero Depreciation

Zero depreciation policy assures you to pay a claim without deducting any depreciation percentage on the items like plastic, fiber made, nylon, etc. It assures your satisfaction because you do not pay any amount from your pocket as depreciation cost.

This add on gives more value to your insurance policy. Please go through this example to understand its importance.

There were two friends Mr. A and Mr. B. They bought cars for them of the same brand and the same price. Mr. purchased only a comprehensive insurance policy and Mr. B purchased an insurance policy with zero depreciation cover.

After some time both cars got an accident and both of them filed a claim of Rs. 200000. But at the time of claim settlement company paid only Rs.140000 and Mr. has to Paid Rs. 60000 for depreciation because his policy was not covered it.

However, Mr. B got the claim of Rs. 200000 and he didn’t pay any depreciation amount from his own pocket because he opted for zero depreciation while buying an insurance policy.

You can save a lot of money by paying some premium for depreciation cover in policy.

Comprehensive Vs Zero Depreciation

With the help of the below comparison, you can have more understanding of the difference between Comprehensive policy and Zero Depreciation Policy.

Comprehensive PolicyZero Depreciation Policy
Depreciation factors applied and depreciation amount is paid by the policyholder at the time of claim settlement.Depreciation amount not deducted at the time of claim settlement. Policyholders get the maximum amount of the claim.
Claim paid after deduction of depreciation.Here claim paid without any deduction of depreciation.
Cost of repairing : some amount is paid by the insured.Total paid by the insurer.
Low Premium.Premium is higher than comprehensive policy.
Can be taken after more than 5 years of the car age.usually available up to 5 years only. In some cases only 3 years.
It is basic insurance policy.It is also called bumper to bumper policy.

With the above difference and depreciation chart, you can determine that you should take zero depreciation add on or not. After all it depends on your insurance need and your budget for insurance policy.

Number of Claims

How many claims are allowed in the ZD policy without deduction of depreciation? Different insurance companies have different rules and regulations for the total number of zero dep claims.

Ideally it limited to two claims in one policy year. Some companies provide more than two claims or an unlimited number of claims for some particular manufactures and or models.

Insurance companies have a limit on the number of claims to avoid making claims on every small dent in the car.

What is not Covered? or Exclusions

Mechanical Breakdown: Insurer also not liable to pay any claim in respect of mechanical breakdowns or electrical breakdowns.

Accessories: If some of your car accessories are not the part of the standard product then maybe it is not covered under this add on.

Consequential Loss: The consequential loss is always excluded.

Driving Under Influence of Alcohol or Drugs: If the driver of the car is influenced by intoxicating alcohol or drugs at the time of the accident of the car then the claim is declined by the insurer.

Repairing Cost: There are many kinds of repair in the car and its totally depends on damages or requirements. All are not covered in zero depreciation policy. Some repairing costs are covered and some are not.

Cost of oil, Greece, coolant, other consumable items, damage to engine through oil leakage, and or water ingression also not covered in this add on. These may be covered through another add on.

Some of the above exclusions may vary from insurance company to insurance company. The exclusion of the basic comprehensive policy is applicable here also. So read the terms and conditions of your policy.

Who Should Buy Zero Depreciation Cover

Ideally this add on should take by everyone but totally depends on you only. There are a few important ideal situations when you should consider zero depreciation in the car insurance policy.

Accident Prone Area

The people who are living in the accident-prone area may have more chances of getting damages in their car. A single hit in the car may cost a huge amount. Ideally should opt zero dep in this kind of area.

New Cars

Most of the people who are insurance experts will always advise taking zero depreciation cover while purchasing a new car. I also agree with this the most important situation when you must take this add on.

Expensive Cars

In luxury cars even, a small dent can cost a big amount. Luxury car has very expensive parts in it and its damage can cost much more than a normal small car. So, in this segment it is always advisable to opt zero depreciation add on.

New Drivers

If a car driver is new or inexperience then chances of an accident are more likely. And this add on will be very helpful to save lots of money in case of any damage through accident.

Worry about small dents

If you are really very worried about any small dent or bump in your car then you should opt this add on.