Car owners are always at the benefit of a secured ride, but it comes with an increased risk for damages. Any scratches to the car or repairs that may be required can put a hole in your wallet. That’s when a car insurance policy comes handy.
Car insurance plans are available in two types—a third-party policy or a comprehensive policy. While the former is the bare minimum insurance coverage that cover any legal liabilities arising from third-party damages, it often falls short of providing any benefits to the policyholder, i.e. you. Thus, there is an increasing preference for buyers to opt for a comprehensive policy. This plan ensures all round coverage for damages to your car as well as third-party coverage. However, it has its share of limitations too. Like all machines, vehicles are subject to depreciation. This element of depreciation in a standard comprehensive car insurance policy lowers the claim amount significantly. To counter this reduced claim, add-ons in the form of a zero-depreciation cover can be purchased.
Meaning of Zero-Depreciation cover
Zero-depreciation is an additional coverage that can be purchased when buying a comprehensive insurance policy. This add-on basically eliminates any effect of depreciation that impacts the compensation amount during a claim. Hence, when making the pay-out for the insurance claim, maximum compensation is offered by the insurer. For this reason, a zero-depreciation plan is synonymously referred as a nil depreciation cover. This comes handy especially in the case of old cars. As the age increases, a larger component of depreciation affects the pay-out thereby lowering the claim amount. * Standard T&C Apply
Depreciation calculation for old cars
While new cars have the least amount of depreciation affecting the insurance claim, the table below mentions how older cars are impacted by depreciation.
| Age of the car | Depreciation rate that impact insurance pay-out |
| Less 6 months | 0% |
| 6 months to 1 year | 5% |
| 1 year to 2 years | 10% |
| 2 years to 3 years | 15% |
| 3 years to 4 years | 25% |
| 4 years to 5 years | 35% |
| 5 years to 10 years | 40% |
| Above 10 years | 50% |
While the above-mentioned table can be used to compute how much depreciation impacts the claim for an old car, car insurance calculator is a nifty tool that can come handy to calculate it. Please visit the official website of IRDA for more information.
The benefits of availing zero-depreciation cover
A zero-depreciation add-on cover, though increases the premium, has the following benefits that you should not ignore:
- Higher insurance pay-out
The foremost advantage is a higher insurance claim is available for all those policyholders that have purchased the nil depreciation add-on. So, if you want to enhance the compensation amount by your insurer for any repairs that might be required, it is best to opt for a zero-depreciation covered.
- Reduced out-of-pocket expenses
With a zero-depreciation add-on, the repair costs that need to be paid from your pocket are reduced as most of it is covered by the insurance company. The only expenses that are required are the deductible component, any voluntary excess that your policy provides and those repairs that are outside the scope of the policy.
- Affordability
You might believe the zero-depreciation add-on is an expensive insurance cover, but that is not the case. In comparison to the benefits it offers, it is an affordable option that marginally increases the premium at purchase and car insurance renewal.
* Standard T&C Apply
With these benefits in mind, make sure to get a zero depreciation cover the next time you are buying or renewing your car insurance policy. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.