Car Insurance Zero Depreciation: What You Should Know About It

Homes, jewellery, electronics, and cars – every valuable in which you invest a large sum of money is subject to wear and tear. This is depreciation, meaning that over some time, the value of your possession will not be the same as it was when you first bought it. 

Cars are not immune to depreciation, either. So, when you claim insurance, you may be reimbursed an amount lower than the original price for the damaged or replaced parts. After deducting the depreciation applicable to your vehicle and its parts, this is the amount you get. To claim the full value of your car parts, you can go for car insurance with zero depreciation cover or zero dep car insurance. 

Key Takeaways:

• Zero dep car insurance protects you against depreciation in the value of the car and its parts while claiming insurance.
• Car insurance with zero depreciation cover applies only to vehicles less than five years old. 
• You can claim insurance under the zero dep car insurance cover twice during the policy tenure. 
• Car insurance with zero depreciation is not a replacement for your comprehensive car insurance policy. It’s an add-on offering enhanced coverage.
• Like any other insurance claim, the car insurance with zero depreciation claim also becomes invalid if you were driving without a valid licence or driving under the influence (alcohol/drugs).
• You will not be reimbursed the cost of add-ons like engine oil, coolant, brake oil, etc., under zero dep car insurance.
• Routine wear and tear are not covered by car insurance with zero depreciation.
• Zero dep car insurance does not consider damages caused by water ingression in the engine and oil leakage.

What Does Zero Dep Car Insurance Mean?

Zero dep car insurance, also known as a Bumper-to-bumper Cover, is an add-on cover that you can buy in addition to your basic car insurance policy. This type of policy is sometimes referred to as Nil Depreciation Cover. 

Having car insurance with zero depreciation shifts the liability of your car’s depreciation and its parts to the insurer. Zero dep insurance means that you can demand the full value of your car in the event of a claim settlement. Without this cover, the depreciated value of the parts will be deducted from your claim amount. 

How is Depreciation Calculated? 

Depreciation of car parts is calculated based on the age of the vehicle. The older the car, the higher the depreciation. This amount is used to calculate your car’s Insured Declared Value (IDV) during a claim settlement. 

First, let us understand what IDV is. In case of total loss/theft of the car, you are offered the car’s current market value by your insurance company. This is known as its Insured Declared Value (IDV). The IDV is calculated after setting off depreciation against the manufacturer’s listing price. IDV also considers accessories not listed in the manufacturer’s price (minus depreciation on the same). When you pick car insurance with zero depreciation, it protects you from deductions on the amount you have invested in the vehicle. 

Source: Tomorrow Makers

Age of the vehicle	Depreciation (in %) for IDV calculation
Up to 6 months	5
6 months-1 year	15
1-2 years	20
2-3 years	30
3-4 years	40
4-5 years	50

The deduction percentage applicable to replaced car parts is as follows:

Parts	Depreciation Rates (in %)
Glass components	0
Fibreglass components	30
Paintwork	50
Plastic, rubber, or nylon parts, airbags, batteries, tubes, and tyres	50

Source: Oneinsure Blog

Who Should Opt for a Zero Depreciation Cover Add-on? 

Getting car insurance with zero depreciation (dep) cover can buy you peace of mind while saving you money in case you are claiming compensation. You can get it over your comprehensive insurance plan at a nominal cost. 

If you think, ‘what does zero dep insurance mean to me?’ or ‘should I buy zero dep car insurance?’, read on. The first thing to consider is the age of your car. You can only opt for a zero dep cover if your car is less than five years old. Of course, if it’s a brand-new car, it makes sense to get this cover as an add-on. 

Car insurance with zero depreciation add-on is advisable in the following cases:

1. Owners of new cars: The value of your car and its parts starts depreciating when it is sold. If you suffer damage to a new car, the heartburn will be higher. So, it is best to opt for car insurance with zero depreciation add-on cover.
2. New drivers: If you are relatively new to driving on Indian roads and own a new car, we recommend getting a car insurance zero depreciation add-on to your comprehensive policy. 
3. Owners of luxury and sports cars: Spare parts for these cars are very expensive. Considering depreciation on these parts, the amount refunded under a claim can hurt your pockets. It’s wise to invest in add-ons such as zero dep car insurance and Engine Protection Insurance for owners of such cars.
4. Accident-prone areas: If you reside in or drive around mostly in localities such as hilly areas prone to accidents, it’s good to pick car insurance with zero depreciation for your vehicle. Even if you are an extremely safe driver, you may suffer accidental damage to your prized possession. 

Benefits of Zero Depreciation Car Insurance Cover:

The greatest benefit of car insurance with zero depreciation cover is the savings you make in case of a compensation claim. While the cover does not offer 100 per cent coverage, it can save you a great amount of money compared to a comprehensive or regular cover. It is beneficial not only for new drivers but experienced ones as well. Following are the key benefits of zero dep car insurance:

1. No out-of-pocket expenses: A car insurance with zero depreciation cover is called nil depreciation cover because depreciation does not affect your policy claim. This means your additional cash expenditure is almost zero, as the insurer will pay for the car’s original value against the depreciated value of your car/parts.
2. Enhanced coverage: The car insurance with zero depreciation add-on offers better coverage for both new and experienced drivers, ensuring full compensation for accidental damage.
3. Better resale value: Your car can fetch a higher resale amount if you have active car insurance with zero depreciation cover.

Did You Know?

Nearly 15 per cent of vehicle insurance claims are turned down by insurance companies. Mostly, this is because the policyholder does not have a valid add-on cover like zero dep car insurance.Your car insurance with zero depreciation claim can be rejected if you were using your personal vehicle for commercial use, or made modifications without informing the insurer.The premium for car insurance with zero depreciation will be calculated based on your location. Usually, it costs approximately 15 per cent of the car insurance premium.Car insurance with zero depreciation cover doesn’t include compulsory deductibles listed under your basic insurance plan.Sources: New Indian Express, Economic Times

Word to Remember: Depreciation

In terms of car insurance, depreciation means a decrease in the car’s value as it ages. The value of individual parts of the car decreases with time and its overall value. So if you spent an amount of Rs 4 lakh at the time of purchase, and your car’s current market value is Rs 2.5 lakh, it has suffered a depreciation of Rs 1.5 lakh.

Conclusion

Car insurance with zero depreciation cover shifts the liability of a car’s depreciation to the insurance company. The company will fully reimburse the policyholder for the damaged or replaced parts. On the other hand, a comprehensive car insurance policy will only reimburse the policyholder for the Insured Declared Value or IDV, which is the vehicle’s current market value. Zero dep car insurance can be bought as an add-on at a premium over your base insurance plan. It applies to cars that are less than five years old. Zero dep car insurance cover is particularly beneficial for people with new cars, new drivers, owners of luxury cars and people driving routinely in accident-prone areas.

Frequently Asked Questions

Type	Keyword	Search Volume	KW Density
Primary	car insurance with zero depreciation		25 times1.6%
Secondary	zero dep car insurance		19 times1.3%
Secondary	zero dep insurance means		4 times0.3%
Secondary	zero dep insurance meaning in Hindi		1 time0.06%
Secondary	zero dep		2 times0.13%