All You Need to Know About Zero Depreciation Car Insurance

Buying a car insurance policy is not a big deal, but buying the right policy is important. The “right car insurance policy” not only offers adequate coverage but is also available at the best price. And Zero Depreciation Cover is one of the “right policies.”

When you buy a brand new car, the dealer will suggest a number of Add-ons to go along with your Comprehensive Car Insurance policy. But buying an Add-on without contemplating your requirements will hardly prove to be beneficial. However, a Zero depreciation add-on is fruitful in most cases. Let’s take a look at this add-on in detail.

What Is Zero Depreciation Car Insurance?

Understanding depreciation is necessary to know how a Zero Depreciation Add-on works. Depreciation is the reduction of monetary value of a car with time. Each part of a car depreciates at a different rate. When you file a claim against your car insurance policy, your insurer will deduct the depreciated value from the claim amount first and then pay the remaining amount. Depreciation takes away a considerable chunk of the claim amount.

Zero depreciation is an ideal cover when the insurer is about to deduct the cost of depreciation from the claim amount. With this cover, your insurer will pay the claim amount without considering the depreciation of your car. This facilitates your insurer to pay more as compared to not having a Zero Depreciation cover.

How Is Depreciation Calculated?

Depreciation of a car is deducted on yearly basis. If a claim is raised in the sixth year of a car, six years of depreciation will be deducted from the claim amount. Refer to the following chart to understand the rate of depreciation:

Age of a Car in yearsRate of Depreciation
Between 6 months and 1 year

5%

Between 1 and 2 years

10%

Between 2 and 3 years

15%

Between 3 and 4 years

25%

Between 4 and 5 years

35%

Between 5 and 10 years

40%

More than 10 years

50%

Car Insurance With and Without Zero Depreciation

Consider two members of a joint family decide to insure their cars from the same insurance company. The only difference is, one of them bought a Zero Depreciation cover while the other opted out of it and chose a basic comprehensive policy. While on a trip with the entire family, both the cars get into a road chain accident due to extreme fog and sustain a considerable amount of damage.

Consequently, both the owners file claims against their respective policies. Here is how the claim amount will be calculated:

Without Zero Depreciation

With Zero Depreciation

Depreciation of car will be consideredOwner will receive the maximum claim amount
Owner will have to pay the cost of repairing fiber and plastic partsThe cost of repairing car parts will be borne by the insurer
The age of car will be the main factor for calculating depreciationThe age of car does not matter while honoring the claim against this cover

The Bottom Line

Adding each add-on to a car insurance policy increases its final cost. Similarly, buying a Zero Depreciation cover will also add to the price of the policy. However, the benefit it offers at the time of claim is way higher than the premium paid.

For the owners of new cars, knowing zero depreciation meaning meaning is of utmost importance. As depreciation is taken into account as soon as the keys of a new car fall into the owner’s hands, any damage to the brand new vehicle can reduce the claim amount unnecessarily.

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