Why You Should Opt for Zero Depreciation Add-On

Posted on: Oct 10, 2022 | | Written by:

Why You Should Opt for Zero Depreciation Add-On

Published on October 03, 2022. EST READ TIME: 3 minutes

impacts zero dep premium and should you opt for one, you are at the right place. The laws mandate for all car owners buy insurance so that they can legally drive their vehicles. But it is not mandatory to opt for a comprehensive plan or any add-ons for that matter. However, the zero depreciation car insurance policy offers a lot of benefits and value for money, should you opt for one. Here are all the details.

Zero Depreciation Car Insurance Policy

You would likely have come across the term zero depreciation car insurance policy or zero dep insurance policy. In essence, it is an add-on to your car insurance policy that nullifies any impact that depreciation might have on your car. It is also called the bumper-to-bumper policy.

When you claim your car insurance, the insurance provider usually considers the cost of the parts at a depreciated rate due to the age of the car and natural wear and tear. And this can result in you ending up paying the difference amount.

Should you opt for zero depreciation car insurance, you stand to receive the actual amount of the replacement parts or repairs without any depreciation being factored in. The add-on simply improves the coverage of your car insurance policy and reduces the financial burden on you. The term zero depreciation essentially means that there are no impacts of depreciation on your policy. Thus, it can be one of the most valuable additions to your car insurance policy .

What Does Depreciation Imply?

As per the standard definition, depreciation for any asset is a reduction in its value. When you consider a car, depreciation refers to the decline in the price of components or parts of the car due to age and natural wear and tear. The amount of depreciation that your car sees is directly related to the age of the car.

The IRDAI, or insurance regulatory and development authority of India, has outlined the depreciation of vehicles. Here is how the value of your car depreciates over time.

Car’s Age	Depreciation
Up to 6 months	5%
Between 6 months and 1 year	15%
Between 1 year and 2 years	20%
Between 2 years and 3 years	30%
Between 3 years and 4 years	40%
Between 4 years and 5 years	50%

If you do not have zero depreciation car insurance, you will end up paying the depreciation amount on repairs of the car. However, the zero depreciation plan ensures that you do not have to worry about depreciation and that the insurance company compensates you for the actual amount.

Should You Opt for Zero Depreciation Add-On?

Adding a zero depreciation cover for your car, offers you extensive coverage and makes your policy a bit more robust. If your car belongs to any of the following categories, you must definitely get the zero dep add-on for your car insurance policy.

New Car

Getting zero dep cover for a brand new car is one of the best decisions. If you are learning to drive, there might be a few initial scratches or dents. And with a zero dep cover, you can claim the policy without any hassles.

Luxury Car

Any repairs on a luxury car can be expensive. In such cases, opting for a zero dep cover adds a lot of value to the policy. Since the components and parts of luxury cars are expensive, the add-on will ensure that there isn’t a dent in your finances every time there is a need for a repair.

Sports Car

Owning a sports car can be extremely thrilling and fascinating. Since they are high-performance vehicles, their components and parts are expensive. Also, getting any repair done on them can be a bit tricky. Thus, you must opt for a zero-dep add-on.

Top Benefits of Zero Depreciation Add-On

Here are some of the major benefits of opting for a zero depreciation add-on.

1. Higher Claim Amounts

With a zero-dep add-on, you can claim the entire amount for replacement or repair of the car without ever having to worry about depreciation eating into your savings.

2. Better Coverage

The add-on enhances the overall coverage of your policy. It ensures that you do not have to worry about repairs or replacement of parts, or any reduction in the claim amount.

3. You Pay Less From Your Pockets

Though having comprehensive car insurance offers better coverage, it might not be enough during claims. You will most likely end up paying a decent amount of money from your pockets. To avoid that, you can opt for a zero-dep add-on.

4. Minimal Premium

If you already have a comprehensive car insurance policy, you can secure a zero-dep plan by paying a nominal premium over the standard policy.

Calculation of Depreciation

Apart from the periodic depreciation of the car, which is outlined in the above table, certain components of the car also depreciate. Here is how depreciation is calculated on those parts.

Component	Depreciation Rate
Wooden Inserts or Parts	5% for the first year and 10% for the second year
Fibre Components	30%
Rubber, batteries, plastic, and nylon components	50%

If you make any claims without a zero dep cover, the insurance provider will deduct the rate of depreciation based on the car’s age and the components being replaced. And you will end up paying for the difference amount from your pocket.

Key Factors To Consider Before Buying Zero Dep Add-On:

Here are the top 3 factors to consider before you add a zero depreciation rider to your policy.

1. Ceiling on Claims:

Insurance providers usually have a ceiling on the number of times that you can claim a zero dep cover for your car. During the tenure of a policy, you can only claim twice.

2. Car’s Age:

Insurance providers usually offer zero depreciation add-ons for vehicles that are up to 5 years old. If your car is older, you might not be able to opt for a zero dep add-on.

3. Coverage Amount:

The zero dep add-on doesn’t apply to all the car components. For example, the glass parts are excluded from the policy coverage.

Key Factors That Impact Zero Dep Add-On Premiums:

Here are the 2 aspects that actually affect the additional premium amount for your zero depreciation add-on rider for your car insurance plan:

1. Age of Car:

The amount of depreciation that your car witnesses are directly proportional to its age. Thus, the premium amount would vary accordingly.

2. Geographical Location:

The location where you are mostly going to drive your car also plays a significant role in deciding the premiums. Cities with lower traffic density would inherently have a lower risk of accidents, thus lower premiums and vice versa.

Why You Should Opt For Zero Dep Cover?

Here are the top 2 reasons why you should opt for your zero-dep cover:

1. Negate The Impact of Depreciation:

As you opt for a zero-dep add-on, you negate any impacts that depreciation might have on your car and claims. Thus, you can claim and receive the entire amount of repair or replacement.

2. Lower Your Car Expenses:

Replacement costs of parts or even repairs can be a bit expensive for cars. However, when you opt for a zero-dep add-on, you effectively lower your expenses on the car, as the policy takes care of most of the expenses.

Conclusion

The zero depreciation car insurance policy costs a little bit more than a standard comprehensive plan. However, it enhances the coverage of your policy and helps you save a considerable amount of money, which you would otherwise lose to depreciation. If you drive a new car, it is highly recommended to get one.

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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