Zero Depreciation

Imagine that you want to buy a new laptop with the latest specs. 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. This low price is due to the fact that some of the laptop parts have gotten old, or some parts might have become outdated.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 there is 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 account when settling the claim.

So what exactly is a zero depreciation cover? How does it work? What are the benefits of zero Depreciation?

Let's dive right in.

What Is Zero depreciation?

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.

Depreciation percentages for parts of the vehicle are fixed according to IRDAI.

Need of Zero Depreciation Cover

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 Years to 2 Years 10% 0%
2 Years to 3 Years 15% 0%
3 Years to 4 Years 25% 0%
4 Years to 5 Year 35% 0%
5 Year 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 % 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 Zero Depreciation Add-On?

Since the add-on negates the depreciation costs of both the vehicle and its parts and you receive the 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 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, the claim amount you receive 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, not the deductible.

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

For instance, Maneesh owns a 6-year 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 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.

Talk to our insurance expert to renew your policy.

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. This is the car that you probably spent a lot of money on, and having an extra add-on for 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 to your car can cause damage to some parts. You are likely to incur more expenses in such a case, so this add-on will help you curtail the costs 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 shoulder 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 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 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. he premium is lower.
Claim settlement The amount you receive will be higher as depreciation is not considered. The 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 you can make. There are no restrictions - you can make unlimited claims.

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

Raj holds a comprehensive motor insurance policy with IDV of Rs 5 lakhs for his car. He happened to get into 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 7000

Depreciation amount for hood and tail lights (made of plastic) = 50% of 10,000 = Rs 500

With Zero depreciation Add-On -

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

= Rs 20,000.

Without Zero depreciation Add-On -

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

= 20,000 – 7000 -5000 = Rs 8,000.

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

So, without the Zero depreciation add-on, Maneesh must pay Rs 12,000 out of his own pocket. And, with the Zero depreciation add-on, he need not pay any depreciation amount from his end.

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.

exclusion of health insurance plans

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