All you need to know about zero depreciation car insurance

The fact that a car is a depreciating asset is something you must have heard often. In fact, the moment it leaves the showroom, the price takes a hit. And with everyday use, your car experiences wear and tear, and its consumable parts get used up. This naturally reduces its original value and this reduction is known as depreciation.Now, when an insurance company assesses your car for its Insured Declared Value (IDV),it considers the depreciation. Which means, if you meet with an accident or your car gets damaged in a natural calamity and you need to file a claim, the compensation you receive from the insurer will be less than what you expect because of depreciation. However, having a zero-depreciation car insurance cover can help.

The effects of depreciation

With the passage of time, depreciation has the following effects:

• Decline in vehicle value:

The IDV of your car goes down because it undergoes wear and tear with the passage of time. The insurance company cannot provide compensation for these routine wear and tear and needs to account for this fact by reducing the IDV of the car. The good thing is that this can be offset by increasing the IDV of your car to a certain extent by paying extra premium

• Decline in available claim value:

When the insurance company processes your claim, they also deduct depreciation from the claim amount. This is done based upon the age of the vehicle and the material of the damaged part. This is where a zero-depreciation car insurance add-on can come in handy to offset the effect of depreciation on the claim value.

What is zero-depreciation cover and how does it work?

Zero depreciation cover, also known as a nil depreciation cover, is an add-on that all leading car insurance companies offer these days. If you pay a slightly higher premium, the insurance company allows you to offset the amount that would have otherwise been considered a deduction for depreciation from your car insurance claim amount.

The clause related to zero depreciation describes that where a person has paid extra premium and where such premium has been realised by the insurance company, the insurance company agrees to consider the clauses related to depreciation as standing deleted. This is subject to cases of partial losses and notwithstanding anything else to the contrary.

Things not covered in zero-depreciation cover

Zero-depreciation car insurancecover is meant to work on vehicle parts that generally do not experience wear and tear due to regular usage. As a result, the following are excluded from the zero-depreciation cover:

• Tyres of the vehicle are in regular contact with the road, and therefore,experience wear and tear owing to regular usage. Hence, they are not considered under the zero-depreciation add-on.

• The batteries of your car function based on the regular flow of current in the electrolyte. As any battery gets charged and discharged over time, the cell chemistry changes, and the electrodes and electrolyte in the battery get used up. Again, like tyres, this occurs due to the regular usage of the vehicle.Consequently, batteries are not covered in zero-depreciation add-on.

You also need to remember that zero-depreciation cover is not available for vehicles more than fiveyears old.

What are the things covered in a zero-depreciation cover?

Considering the exclusions mentioned above, if you purchase azero-depreciationcar insuranceadd-on, your vehicle will get the relevant protection for all its parts, except the tyres and battery. So, in a way, this add-on is bumper to bumper in nature.

In summary, a zero-depreciation cover is meant to provide you an extra layer of protectionand power up your car insurance policy. With it, you can offset the deduction that you would have had to bear from your own pocket otherwise!

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.