Zero Depreciation cover

What is a Zero Depreciation Cover works?

A Zero Depreciation cover means (also known as a nil depreciation or bumper-to-bumper cover) an add-on in a comprehensive vehicle insurance policy that negates the effect of depreciation on the vehicle's parts during a claim settlement. This ensures that you receive the full cost of repair or replacement for damaged parts without any deduction for their age or wear and tear.

How a Zero Depreciation cover works?

Under a standard comprehensive policy (Own damage + Third Party cover), when you file a claim for damages, the insurance company deducts a certain percentage from the claim amount to account for the depreciation of the replaced parts. With a Zero Depreciation add-on, this deduction is waived, and the insurer covers the full cost of the new parts. Higher the age of the car higher would be the depreciation.

Example of a Claim Settlement:

Imagine your car's bumper is damaged, and the repair cost is Rs. 10,000.

• Without Zero Depreciation Cover: The insurer might apply a 50% depreciation rate on plastic parts, This means you would receive Rs. 5,000, and you would have to pay the remaining Rs. 5,000 from your own pocket, in addition to any compulsory deductible.
• With Zero Depreciation Cover: The insurance company would cover the entire Rs. 10,000 for the new bumper, and you would only need to pay the compulsory deductible amount.

What is Covered and Not Covered?

Inclusions (covered):

• Full coverage for parts: It typically covers the cost of plastic, rubber, nylon, and fiberglass parts without any deduction for depreciation.
• Partial coverage for other parts: While it covers most parts at 100%, some components like tires, tubes, and batteries are usually covered at 50%.

Exclusions (not covered):

• Normal wear and tear: The policy does not cover the natural aging of vehicle parts that have not been damaged in an accident.
• Uninsured perils: Damages caused by incidents not covered in the comprehensive policy are excluded.
• Mechanical breakdowns: Issues arising from mechanical or electrical failure are not covered.
• Compulsory deductibles: The mandatory amount you must pay on every claim is not covered by this add-on.

Depreciation Rates in India

The Insurance Regulatory and Development Authority of India (IRDAI) has set standard depreciation rates that insurers follow:

• Rubber, Nylon, Plastic Parts, and Batteries: 50%
• Fiberglass Components: 30%
• Wooden Parts: 5% in the first year, increasing with age
• All parts made of glass – Nil
• Metallic Parts & Other Parts: The rate of depreciation increases with the age of the vehicle, starting from 0% for cars less than six months old and going up to 50% for cars over 10 years old.
• Painting – depreciation of 50 % only on material cost; if bill is consolidated, material component may be considered ~25 % of total painting charges for application of depreciation

Who should opt for Zero Depreciation Cover?

This add-on is highly recommended for:

• New car owners: To protect the value of a new vehicle, which depreciates quickly.
• Luxury car owners: The parts for high-end cars are expensive, and this cover can lead to significant savings on repairs.
• New or inexperienced drivers: They have a higher probability of being involved in an accident.
• Residents of accident-prone areas: If you live in a location with high traffic density or poor road conditions, the risk of damage is higher.

Key considerations

• Higher Premium: This add-on comes at an additional cost, which can increase your total insurance premium by about 15-20%.
• No Claim Bonus: You will get a discount on top of the additional premium if you haven't made any claim/s the previous year.
• Age Limit: Most insurers offer this cover for cars that are up to five years old, few insurers extend more than 5years too.
• Claim Limit: Some insurance companies may limit the number of zero depreciation claims you can make in a policy year.