Impact of Depreciation In Car Insurance
Depreciation in car insurance refers to reduction in the value of car with passage of time. In this article we tell you how it affects the car insurance and the add-ons that are available to avoid such losses.
Depreciation in car insurance refers to the loss in the value of a car with respect to time. It is obvious that all the parts of the car wear out with the time which leads to a reduction in market value of the car. Depreciation value for different parts of a car is different but there is always an overall depreciation value. This is the reason because of which the value of a new car is higher in comparison with the value of a used car. As the car grows older the value of depreciation increases which ultimately reduces the current value.
How Does Depreciation Affect Your Car Insurance?
Depreciation is an important factor that comes into picture from the time car insurance is bought. The insurance company calculates the rate of depreciation, that is dependent upon the age of the car, to find out the value that they will provide for the car.
The car’s IDV or Insurance Declared Value is determined only after deducting the applicable depreciation.
For example, the depreciation rate of a 1 year old car is calculated at 5% on the other hand for a car which is 10 years old, the depreciation rate is 50%. As the car grows old, the claim amount offered by insurance companies reduces as the depreciation rate increases with time.
What is Zero Depreciation Car Insurance Add-on?
A zero depreciation cover is a car insurance add-on which helps you save the money incurred as depreciation expenses of your car. By default, the depreciation expense of a car and its various parts is borne by the policyholder. However, by option for a zero depreciation cover, you can shift this liability to the insurance company. This add-on can be bought with standalone car insurance policies and comprehensive car insurance policies.
Zero Depreciation Car Insurance Vs Normal Car Insurance
Age of Car |
Rate of Depreciation Without Zero Depreciation Cover |
Rate of Depreciation With Zero Depreciation Cover |
|
Under 6 months |
0% |
0% |
|
6 months to 1 year |
5% |
0% |
|
1-2 years |
10% |
0% |
|
2-3 years |
15% |
0% |
|
3-4 years |
25% |
0% |
|
4-5 years |
35% |
0% |
|
5-10 years |
40% |
0% |
|
Above 10 years |
50% |
0% |
|
Car Part |
Rate of Depreciation Without Zero Depreciation Cover |
Rate of Depreciation With Zero Depreciation Cover |
|
Parts made of glass |
100% |
0% |
|
Rubber/nylon/plastic parts, tyres and tubes, batteries, paint work and airbags |
100% |
50% |
|
Parts made of fiberglass |
100% |
30% |
Conclusion
In this article we discussed the meaning & effects of depreciation and how a policyholder can avoid the impact of depreciation. It is important to get the zero depreciation add-on to avoid any losses arising out of depreciation. A zero depreciation cover helps you in getting a higher IDV calculated from the insurance provider.
You May Also Like To Read:
Importance of A Comprehensive Car Insurance Policy
When Is The Best Time To Buy A Car in India
Disclaimer: This article is issued in general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.
