Why Zero Depreciation Car Insurance Is so costly in India?

Meta Description: Learn about Zero Depreciation car insurance policy, depreciation rate, and the reasons why rates of zero depreciation car insurance are increasing in India.

At the time of settling the claim, to decide the net amount payable to the claimant, the insurance company calculates and applies the depreciation rate (concerning the damaged part of the car). The insured/car owner bears the difference in the cost of a new part and depreciated part. Here is when the Zero Depreciation Car Insurance policy comes to rescue!

  • Zero Depreciation
  • Zero depreciation, also known as Nil depreciation, is a car insurance policy that offers complete coverage without considering the factor of depreciation. The insurance company will pay for the entire cost of the body part(s) that might need to be replaced after an accident or mishap.
  • For example, if you own a vehicle purchased at an initial IDV (Insured Declared Value) and in case the car comes across an accident, then under the policy of Zero Depreciation, the insurance company will cover the entire settlement including the cost of the replaced part no matter how many years have passed since the purchase of the vehicle.
  • Advantages:
  • Unlike Normal Car Insurance, wherein the claim amount is based on the current value of the vehicle, which factors in depreciation, Zero Depreciation Cover offers a full settlement coverage without taking into account the depreciation factor.
  • Though the premium paid is slightly high than the standard car insurance, the coverage reduces your expenses to almost zero.
  • It offers a benefit for amateur as well as experienced drivers from the financial burden of losing money due to depreciation factor when raising a claim.
  • Control expenses incurred as per the current market value.
  • Depreciation rate
  • Depreciation is the term used when an asset that you own loses value over time due to deterioration or normal wear and tear.
  • The depreciation rate is the percent rate at which the asset is depreciated across the estimated productive life of the asset.
  • Why zero depreciation car insurance is costly in India?

As the Zero depreciation car insurance offers complete coverage without considering depreciation, so it charges a slightly higher premium than a comprehensive policy. Hence the cost of this policy is somewhat high.

  • Also, every customer has to pay a compulsory excess mandatorily for the zero depreciation policy he has purchased.
  • This policy applies to only new cars with a specific age limit and it has limitations on the number of claims made annually.
  • As per Indian Motor Tariff, each part of the vehicle has a different depreciation rate such as:
  • For all Paint work – the depreciation rate is 50%
  • For all rubber/plastic/nylon parts, batteries, tires, and tubes, air bags – depreciation rate is 50%
  • For components made of fiber glass – the depreciation rate is 30%
  • For parts made of glass – No depreciation.
  • Thus if your car goes through an accident and the paint of the rear bumper is damaged, 50% of the cost of the paint will be borne by you. The insurance company will bear the cost of labour and the remaining 50% of the price of the repaint procedure.

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