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Significance of Zero Depreciation Add-on Cover in Car Insurance

Written by Udit Varshney
Updated On Oct 15, 20232 min read
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Wondering whether you require a zero depreciation cover? Read this article to find out.

Like all machines the value of your car falls with the passage of time due to the natural wear and tear of machines. This fall in value is termed as depreciation in insurance. The depreciation of your car, depending on its age is taken into account by insurance providers at the time of claim settlement. In case there is a mishap of some sort of accident where you file a claim, the insurance company will not compensate the entire amount because of the depreciation of the car. However, if you purchase a zero depreciation add-on cover, it will negate the depreciation of the car at the time of claim settlement. Thus, it makes you out-of pocket costs significantly lower. In this article, everything you need to know about the zero depreciation cover will be explained.

Significance of Zero Depreciation Add-on Cover in Car Insurance

What is Depreciation? How is it Calculated in Car Insurance?

As mentioned before, depreciation accounts for the wear and tear of the over time and the fall in value as a result of it. There is a set depreciation rate decided by the Insurance and Regulatory Authority of India (IRDAI) that is used by insurance providers.

Age of the Car

Depreciation Rate in Percent

Less than 6 months

Nil

6 months to 1 year

5%

1 to 2 years

10%

2 to 3 years

15%

3 to 4 years

25%

4 to 5 years

35%

5 to 10 years

40%

More than 10 years

50%

What is the Zero Depreciation Cover?

The zero depreciation cover is an add-on cover. This means that it cannot be purchased on its own. You can purchase the cover in addition to a standalone own damage cover or a comprehensive insurance plan at an additional cost. When purchased it will negate the depreciation rate of the car at the time of claim settlement. However, this cover is only available for cars that are less than 5 years old and can be used a limited number of times within a year.

Who Should Purchase the Zero Depreciation Cover for Cars?

Following are the people who should consider purchasing the zero depreciation add-on cover:

  • People who have recently purchased a new car
  • People who own a luxury car
  • People who live in areas that high risk
  • People who are new at driving cars
  • People who worry about the small scratches and dents in their car
  • People who purchase cars that have expensive spare parts

Conclusion

In a nutshell, the zero depreciation cover can make a significant difference to the policyholder at the time of claim settlement as it negates the depreciation of the car increasing the claim amount. Due to this the out-of pocket-costs are also lower. The zero depreciation cover is available for cars that are less than five years old and can be used a limited number of times in a year. Lastly, keep in mind that the cover will not be effective in cases of total loss, illegal driving and replacement for certain car parts.

Read More:

Zero Depreciation Car Insurance Explained

Understanding The Difference Between Third Party Cover and Zero Depreciation Cover In Car Insurance 

Disclaimer: This article is issued in the 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.

Disclaimer

This article is issued in the 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.
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Written by Udit Varshney
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 Udit has built B2C segments across various industries and has had significant contributions to the insurance sector. Udit in his last stint helped set out the last mile vertical, which soon became the go-to logistics name for daily needs, In his free time, Udit likes to write and listen to poetry.

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