Zero Depreciation Car Insurance

What is a Zero Depreciation Cover?

A zero-depreciation cover, also known as nil depreciation or a bumper-to-bumper cover, pays the whole cost of external care body repairs or replacement without taking into consideration any depreciation in the value of the car parts.

This usually comes as an ‘Add-on’ with a comprehensive car insurance policy. You cannot buy a zero depreciation cover with a third-party liability only car insurance. Your dealer / agent may call it a bumper-to-bumper policy or zero dep policy.

Let’s suppose, you bought a beautiful car for Rs 4.5 lakh. Four years down the line, you plan to sell it off. This fetches you Rs 1 lakh.

Why?

Answer: Depreciation. The value of your car falls over time because of wear and tear and ageing. Different parts of your car depreciate at different rates. Even the insured declared value of your car decreases year on year at a certain rate of depreciation.

 

Depreciation affects your car insurance even if you don’t claim for the whole amount, which would be in the case of total loss of your car [think of situations like fire or theft here]. This is because, it also affects the car’s parts. Here’s a look:

Rates Of Depreciation

ItemRate of Depreciation
Rubber, nylon, plastic parts
Tyres and tubes
Batteries and air bags
50%
Fibre glass components 30%
All parts made of glassNil
Material cost of the paint in case of a paint job
Note: If a consolidated amount is charged for the job,
then 25% of the total cost will be considered as the material cost.
50%

The rate of depreciation for wooden parts and all the other parts varies as per the age of the vehicle.

Age of the vehicleRate of Depreciation
6 months or lessNil
Between 6 months and1 year5%
Between 1 and 2 years10%
Between 2 and 3 years15%
Between 3 and 4 years25%
Between 4 and 5 years35%
Between 5 and 10 years40%
More than 10 years50%

So, when you make a claim against your insurance for repair or replacement of any of these parts, the insurer pays you the depreciated value. It does not pay the full cost of repair/replacement. You pay the difference from your pocket.

And this is where a Zero depreciation add-on comes to your rescue.

How Is Zero Depreciation Different From A Regular Cover?

Zero-Depreciation CoverComprehensive Cover
- You get the whole cost of repairs to external car body damages irrespective of the depreciation amount.

- Since this is an add-on cover, you pay a higher premium.

- Your insurer pays for the repairs/ replacement of the plastic and fibre components of your car.
- The amount that you get minus the depreciation value of car parts.

- The premium that you pay in this case is lower than a bumper-to-bumper cover premium.

- You partly pay for the repairs/replacement of the metal, plastic or fibre glass components of your car from your pocket.

Why Buy A Zero-Depreciation Cover?

Let’s ask Chintan.

Chintan was driving his new car worth Rs. 6 lakh. Unfortunately, his car rammed into a wall. The accident caused damages to the vehicle parts worth Rs. 25,000.

However, the depreciation value of such parts was Rs. 5,600. So, his comprehensive policy would have paid Rs 19,400 after deducting the depreciation amount. He would have had to foot the rest of the repair bill.

Instead, Chintan could have paid Rs. 2,800 extra on his car insurance premium and bought a zero-depreciation cover. He could have then claimed the entire amount.

He could have saved Rs. 2,800.

It, thus, makes sense to buy this add-on if you have an expensive car as the depreciation value of such cars are high.

Factors to Consider Before Opting For a Zero Depreciation Cover

A zero depreciation cover helps you save money during accident-related damages.

However, you must consider the following factors before buying such a cover:

The age of your car- Such add-ons are usually available for new cars.
- You may not get a zero-depreciation cover for cars older than 5 years.
The number of claims- There is a limit on the number of claims you can make in a year.
- This is to discourage claims for every small loss.
The cost- You pay extra to buy such a cover.
- A zero-dep can cost you anywhere between 20-50% of a standard premium.

When is a Zero-Depreciation Cover Ideal?

A zero-depreciation cover helps you save money during repairs or car part replacements. It is an ideal cover for the following cases:

  • If your car is expensive—the depreciation value of its parts would be high.
  • If you live in an accident-prone area.
  • If you worry about even the smaller dents and bumps in your car.
  • If you are not sure of your driving skills.

Which Factors Affect The Bumper-To-Bumper Cover Premium?

Your premium amount for this add-on depends on quite a few factors. The three major ones are:

  • The age of your car
  • The model of your car
  • Your location
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