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Zero Depreciation

Imagine that you want to buy a new laptop with the latest specification. So, you plan to sell your old laptop, which you had bought for Rs 35,000 three years ago. But now it's worth only Rs 15,000. It's value reduces due to the fact that some of the laptop parts have got old, or some softwares might have become outdated. This decrease in the laptop's value and the parts over the years is called depreciation.

Likewise, when vehicles become old, they lose their value over time. This decrease in value, called Depreciation, impacts the claim amount. When you make a claim, the depreciation value is deducted from the total claim amount.

This depreciation substantially increases your out of pocket expenses whenever you make a claim. If you don't wish that to happen, there is a simple solution. You can add a zero depreciation add-on to your existing policy at a certain additional cost. When you add this to your coverage, depreciation isn't taken into considration at the time of claim settlment.

So what exactly is a zero depreciation cover? What is the requirement of zero depreciation cover? What are the benefits of zero depreciation?

Let's dive right in.

What Is Zero Depreciation Add-on?

A Zero Depreciation policy, also referred to as Bumper to Bumper coverage or Nil Depreciation or Depreciation Waiver, is an add-on that you can add to your existing policy by paying an additional amount.

While some insurance companies may only let you claim twice under this add-on, others like IFFCO Tokio, Oriental Insurance etc., allow you to claim infinite times while your insurance policy is in effect.

Zero Depreciation Add on in Motor Insurance

Why Do You Need A Zero Depreciation Add-On?

When you file a claim, the depreciated value of the parts is usually deducted from the total payable claim amount. If you choose a zero-depreciation add-on, you can avoid this expense entirely.

IRDAI sets the depreciation percentage for different parts of the vehicle.

Depreciation Rates With And Without Zero Depreciation Cover

Here are the applicable depreciation rates based on the age of a vehicle.

Vehicle’s Age	Rate Of Depreciation Without Zero Depreciation Cover	Rate Of Depreciation With Zero Depreciation Cover
Less than 6 Months	Nil	0%
6 Months to 1 Year	5%	0%
1 Year to 2 Years	10%	0%
2 Years to 3 Years	15%	0%
3 Years to 4 Years	25%	0%
4 Years to 5 Years	35%	0%
5 Years to 10 Years	40%	0%
More then 10 Years	50%	0%

Depreciation Rates That Are Applied On Vehicle Parts

Parts Of The Vehicle	Rate Of Depreciation Without Zero Depreciation Cover	Rate Of Depreciation With Zero Depreciation Cove
Nylon, Rubber & Plastic Parts	50%	0%
Fibre Parts	30%	0%
Glass Parts	Nil	0%
Wooden Parts	5% in the first year, 10% in the second year, and so on.	0%
Metal Parts	As per the age of the vehicle	0%

What Are The Benefits Of The Zero Depreciation Add-On?

Since the add-on nullifies the depreciation costs of both the vehicle and its parts and you receive the exact claim amount for the same, the add-on helps you get a relatively wider coverage.

In the event of an accident, when there are damages incurred to the parts of the car, you may have to pay the depreciation amount for each part. Using this add-on, the deducted depreciation amount for all parts can be saved. This shall curb your out-of-pocket expenses, thereby saving your funds.

As this add-on does not factor in depreciation cost, the claim amount received with this add-on will be higher than the claim amount you may receive without this add-on.

What Does The Zero Depreciation Add-On Not Cover?

The claim amount is generally calculated by subtracting the consumable charges, depreciation and the compulsory deductible. The compulsory deductible is the fixed amount set by the IRDAI to be paid from your end before the insurance company starts paying up during claim settlement. By adding this add-on, only the depreciation portion will be waived off, not the deductible.

Vehicles older than five years do not qualify for the zero depreciation add-on.

For instance, Maneesh owns a 6-years old Alto car. He holds a comprehensive insurance policy with an IDV of 6 Lakhs. As his vehicle has already exceeded the 5-year limit, he cannot opt for a Zero Depreciation Add-on.

Please note that most of the insurance companies provide zero depreciation till the vehicle is 5 years old, but some may provide it beyond this timeframe as well.

A zero depreciation add-on will only cover the cost of the parts made up of rubber, fibre etc. and will not cover the cost of consumables such as nuts, bolts, engine oil, coolant, etc. You need to buy a separate add-on called a consumable cover to cover the cost of these consumables.

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Who Should Buy A Zero Depreciation Add-On?

If you own a new vehicle and wish to have maximum coverage, you can opt for this add-on. Having an extra add-on by paying an additional fee will only make it even more valuable. Accidents happen uninformed, and if your new car gets damaged, it would be a real hassle for you both mentally and financially. This add-on will assist you in managing your extra expenses in case of an accident.

Getting this add-on is a good idea if you live in an area where accidents are more likely to occur. Even a minor bump on your car can cause damage to some parts. You are likely to face more expenses in such a case, so this add-on will help you curtail the cost associated with damaged parts.

Owning a high-end vehicle means even a minor accident is an expensive affair. Any damage to parts of your car will only lead to hefty expenditures. As this add-on will bear the depreciation costs of the parts, you can save substantial amounts of money.

Upon filing a claim, you may be required to pay both the depreciation amount and the deductible amount. In the event of a serious accident, depreciation costs will likely be high. With this add-on, you need not bear the depreciation costs and need to pay only the deductible and consumable amount. Your out-of-pocket expenses will be lower than those without the add-on.

Can You Add A Zero Depreciation Add-On To Comprehensive Policy?

Yes, adding a zero- depreciation add-on to the comprehensive coverage will only prove to be beneficial. A comprehensive policy is a type of insurance policy that covers both third-party liabilities as well as own damages. Getting this additional add-on at a certain extra cost shall provide you with wider coverage.

Let’s understand how a comprehensive policy works with and without a Zero Depreciation Add-on:

	Comprehensive Policy With Zero Depreciation Cover	Comprehensive Policy Without Zero Depreciation Cover
Definition	Here, depreciation will not be considered at the time of claim settlement.	Here, depreciation will be considered at the time of claim settlement.
Premium	The premium is slightly higher.	The premium is lower.
Claim settlement	The claim amount you receive will be higher as depreciation is not considered.	The claim amount you receive will be lower as depreciation is considered.
Availability	Only available for vehicles up to 5 years old.	Available for vehicles of all ages.
Number Of Claims	There can be restrictions on the number of zero depreciation claims that you can make.	There are no restrictions - you can make unlimited claims.

Let's Understand How The Zero Depreciation Add-On Works With An Example

Raj holds a comprehensive motor insurance policy with IDV of Rs 5 lakhs for his car. Suppose he met an accident with another car. This caused severe damage to the car's trunk, damaging the bumper, hood, and tail lights. The repair cost for the bumper is around Rs 10,000, and for the hood and taillights, around Rs. 10,000.

Let’s look at the claim payable to Raj if he owns a Zero Depreciation add-on and the claim payable if he doesn’t own one.

Depreciation amount for bumper (made of fibre) = 30% of 10,000 = Rs 3,000

Depreciation amount for hood and tail lights (made of plastic) = 50% of 10,000 = Rs 5,000

With Zero depreciation Add-On -

Claim payable for the parts = Rs.20,000 – 0% -0%

= Rs.20,000.

Without Zero depreciation Add-On -

Claim payable =Rs. 20,000 - Bumper depreciation - hood and tail depreciation

=Rs. 20,000 – Rs.(3,000 + 5,000) = Rs. 12,000.

Please note that consumables and deductibles are not factored in for understanding purposes.

So, without the zero depreciation add-on, Maneesh must pay Rs.8,000 out of his own pocket. And, with the zero depreciation add-on, he need not pay any depreciation amount from his end.

How To Add A Zero Depreciation Cover To Your Policy?

You can follow the below steps to add zero depreciation to your policy

Visit the website of the insurance company or web aggregator or broker and enter the details of your vehicle like make and model, registration number, fuel type, etc.
Once the details are filled in, you will be directed to the quote page where you will find the coverage options as well as premium details.
From the drop-down list of “add-ons” options, you can add zero depreciation to your coverage.
The premium will get updated once the zero-depreciation add-on is added.
Check all the details thoroughly and make the payment.
You will receive the policy document once the payment is done.

Things To Note Before Adding Zero Depreciation Cover To Your Policy

Here are a few things you should know about before opting for a zero depreciation cover

Zero depreciation is an optional cover and hence, you will have to make an extra payment to add the same to your policy.
There is a limitation on the number of times you can claim under zero depreciation. This may vary depending on the insurer to insurer.
Generally, most insurers provide zero depreciation only till the 5th year of the vehicle. Even the insurers who provide zero depreciation for vehicles more than 5 years old will impose certain conditions. So before adding zero depreciation for your old vehicle, check all the terms and conditions with your insurance company.
A zero depreciation will only waive the depreciation that is applicable to the vehicle parts and not the compulsory deductibles.

Factors Affecting The Premium Of Zero Depreciation

Age Of Your Vehicle

The premium of the add-on depends on the age of your vehicle. The premium for zero depreciation add-on for new vehicles will be a little higher than for older vehicles
Location Of The Vehicle

Where you drive your vehicle also plays an important role in deciding the premium of the zero-depreciation add-on. The premium is based on the claims that insurance companies have received in the past from a certain location. If your vehicle happens to be from an accident-prone city or locality then the premium which you will have to pay will be a little higher than those vehicles that are driven in less accident-prone areas.
Make And Model Of Your Vehicle

Different makes and models of vehicles have different features and hence, needs different type of coverages. The premium of the zero depreciation policy will also differ as per the make and model of the vehicle.

Insurance companies deduct the depreciation value from a motor insurance claim before paying it out. The most efficient way to avoid this is to opt for the Zero Depreciation add-on with your existing policy plan. With this add-on, Depreciation will not be taken into account when calculating the claim amount.

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Frequently Asked Questions

Your vehicle’s value depreciates as soon as it is taken out of the showroom, and the value keeps on depreciating every year. A comprehensive policy does not cover the depreciation that happens to your vehicle parts and at the time of claim, such expenses are to be covered by you if you do not have the zero depreciation add-on.

Zero depreciation and bumper-to-bumper cover are one and the same, they are just different names for the same feature. The other names for zero depreciation are Nil Depreciation, Depreciation Waiver, etc.

You can opt for the zero depreciation cover during policy purchase. Once you make the payment, you get your policy copy and you can check the zero depreciation details mentioned in the premium schedule.

Generally, most companies offer zero depreciation only to vehicles that are less than or equal to 5 years old. However, there are companies that offer zero depreciation even for those vehicles that are more than 5 years old. You need to check with your insurer whether they offer such coverage as well as all the terms and conditions associated with the same.

If you have a vehicle that is less than 5 years old, a Comprehensive + Zero Depreciation policy will be a better choice for you.
If you own a vehicle that is older than 5 years old, it is better to go with only a comprehensive policy. Having a zero depreciation add-on will always be a better choice as you will get enhanced coverage for your vehicle. However, not all insurers offer this cover for vehicles more than 5 years old. You can purchase it if it is available.

It mainly depends upon the location, age, and make and model of your vehicle.