Electric or Petrol, Which Car Has a Higher Depreciation Cost?
Electric or Petrol, Which Car Has a Higher Depreciation Cost?
Owing to various environmental effects and rising awareness, people are now showing more interest in electric vehicles. Since EVs have been recently introduced in India on a large scale, currently, there is not a long list of users. However, it is expected that soon more and more people will be seen switching to electric vehicles. Coming to the question of depreciation cost, the general wear and tear cost of a vehicle is deducted from the overall motor insurance claim amount. One may wonder if the depreciation cost of an EV is the same or different from that of a petrol car. Let's get into the details.
Depreciation costs of electric cars vs petrol car
When a motor insurance claim is raised, the depreciation cost of a vehicle is calculated and deducted from the claim amount. However, if you have a zero depreciation car insurance cover, the depreciation cost of the vehicle is not calculated, and you receive the full claim amount (except the deductibles).
As of now, the depreciation cost of electric vehicles and petrol vehicles is the same in India. IRDAI and the insurance companies have not yet decided on the exact depreciation on electric vehicles. Although the lifespan of an electric vehicle battery is approximately 2 to 4 years, and that of a petrol vehicle is 10-15 years. Hence, the depreciation cost of EVs may be higher than that of fuel vehicles. It should also be kept in mind that when it comes to an electric vehicle, the cost of the battery is almost up to 50% of the total cost of the car, this makes the calculation of depreciation rather tricky.
With regular motor insurance, a set schedule of depreciation is applicable, which may not run true for EVs, as their battery may depreciate much more quickly than a petrol vehicle. Given below are the depreciation rates that are regulated by the Insurance Regulatory and Development Authority of India (IRDAI):
| Vehicle’s Age | Depreciation (in Percentage) |
| Less than 6 months | 5% |
| Over 6 months, yet less than a year | 15% |
| Over 1 year, yet less than 2 years | 20% |
| Over 2 years, yet less than 3 years | 30% |
| Over 3 Years, yet less than 4 years | 40% |
| Over 4 Years, yet less than 5 years | 50% |
| 5 Years and above | Decided mutually by the insurance companies and the policyholder |
Factors that affect the depreciation cost of electric cars vs petrol cars
As of now, there are very few electric vehicles in India as compared to other fuel vehicles. This is one of the major reasons why insurance companies are not yet prepared with the exact depreciation cost of electric vehicles. However, in the near future, it is predicted that EV demand will grow rapidly in India. Hopefully, soon, a practical depreciation cost will be framed for EVs. Let's check out what impacts the depreciation cost of fuel and electric vehicles:
1. Mileage
The mileage of a car is the distance it covers per unit of fuel/battery. The higher the miles, the higher will be the depreciation cost.
2. Cost of the vehicle
The value of your vehicle affects the depreciation cost. If you have a luxury and costly vehicle, the maintenance is expensive as well. So, the cost of depreciation of an expensive vehicle is more than others of less range.
3. Size of the vehicle
The vehicle's size depicts the overall amount of emissions from the car. A large vehicle is highly likely to produce more emissions than a compact and small vehicle. This is the reason the emissions of SUV cars are more than that of a small vehicle or an EV.
4. Engine type
The type of engine that a vehicle has directly affects the emissions and the depreciation cost. An electric vehicle is considered more eco-friendly than a petrol or diesel vehicle. This is the reason the emissions from EVs are far less than fuel vehicles.
5. Age of the vehicle
The older the vehicle, the higher the depreciation cost. If you have a new vehicle, the depreciation value is low and vice-versa. With time, the value of a car decreases, and maintenance also increases due to frequent problems in the vehicle. All of this, in turn, increases the depreciation cost.
6. Service history
When you are buying or claiming electric car insurance , you need to know that the history of the car owner also plays an important role in deciding the depreciation cost. If you are capable of maintaining a vehicle properly with fewer claims and better management, you are likely to pay less depreciation cost.
7. The reputation of the brand
The brand of your vehicle is also a matter of concern for depreciation cost. Some companies are known for building robust engines with better lifespans, and such models may be charged a low depreciation cost.
In various countries, EVs are performing better than fuel vehicles when it comes to the depreciation of the vehicle. It is also expected that globally, including in India, electric vehicles will be the emerging face of motor vehicles because they have low emissions and are eco-friendly.
Conclusion
An electric vehicle runs on batteries which make up more than half of the vehicle's cost. In short, an EV is highly dependent on its batteries. Having said that, since EVs are recently introduced models in the country, insurance companies are still juggling to find the exact depreciation cost on electric vehicles in comparison to fuel vehicles. Currently, the depreciation cost on electric vehicles is the same as that of petrol vehicles. Let's see what the future of upcoming electric cars in India and their insurance plans hold.
Disclaimer : The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales
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