What is Zero Depreciation Cover in Car Insurance Policy?

zero depreciation cover
Zero depreciation cover - Car Insurance

Zero depreciation is also called the Nil Depreciation cover. You can take it by paying an additional premium. When you file any claim on the occurrence of any damage then the company pays you the claim amount without deducting any depreciation.

Suppose you have two cars; one is a brand-new car and another is a one-year-old car. The manufacturer, Model, and everything are the same for both. But can you guess what will be the current market value of both vehicles?

Of course, a new car has a higher value than a one-year-old car. Why is it? It is because of depreciation only. The material used in car, like plastic, wood, metal, glass, fiber, and others, etc has a certain value that depreciates as time goes and this gradual reduction in value is called depreciation.

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Depreciation Rates

Depreciation rates without a zero depreciation policy are applicable as follows:

All Plastic parts, Nylon, Tyres and Tubes, Rubbers, Batteries, and Airbags – 50%

All Fiber Glass components – 30%

Parts made of Glass – Nil

Metals and other parts including wooden parts as per the below chart:

AGE OF VEHICLEPERCENTAGE OF DEPRECIATION
Not exceeding six monthsNil
Exceeding six months but not exceeding 1 Year5%
Exceeding 1 year but not exceeding 2 years10%
Exceeding 2 years but not exceeding 3 years15%
Exceeding 3 years but not exceeding 4 years25%
Exceeding 4 years but not exceeding 5 years35%
Exceeding 5 years but not exceeding 10 years40%
Exceeding 10 years50%

Benefits of Zero Depreciation

Zero depreciation policy assures you to pay a claim without deducting any depreciation percentage on the items like plastic, fiber made, nylon, etc. It assures your satisfaction because you do not pay any amount from your pocket as depreciation cost.

This add-on gives more value to your insurance policy. Please go through this assumed example to understand its importance. (Example is for understanding purposes only, the actual calculation may differ).

There were two friends Mr. A and Mr. B. They bought cars for them of the same brand and the same price. Mr. A purchased only a comprehensive insurance policy and Mr. B purchased an insurance policy from Royal Sundaram with zero depreciation coverage.

After some time both cars got into an accident and both of them filed a claim of Rs. 200000. But at the time of claim settlement company paid only Rs.140000 and Mr. has to Paid Rs. 60000 for depreciation because his policy was not covered it.

However, Mr. B got the claim of Rs. 200000 and he didn’t pay any depreciation amount from his own pocket because he opted for zero depreciation while buying an insurance policy. You can save a lot of money by paying some premium for depreciation cover in the policy.

Comprehensive Vs Zero Depreciation

With the help of the below comparison, you can have more understanding of the difference between the Comprehensive policy and the Zero Depreciation Policy.

Comprehensive PolicyZero Depreciation Policy
Depreciation factors are applied and the depreciation amount is paid by the policyholder at the time of claim settlement.Depreciation amount not deducted at the time of claim settlement. Policyholders get the maximum amount of the claim.
Claim paid after deduction of depreciation.The claim was paid without any deduction of depreciation.
Cost of repairing: some amount is paid by the insured.Total paid by the insurer.
Low Premium.Premium is higher than a comprehensive policy.
Can be taken after more than 5 years of the car age.Zero depreciation cover is usually available for up to 5 years only. In some cases only 3 years.
It is a basic insurance policy.It is also called the bumper-to-bumper policy.

With the above difference and depreciation chart, you can determine whether you should take a zero depreciation add-on or not. After all, it depends on your insurance need and your budget for the insurance policy.

Number of Claims

How many claims are allowed in the ZD policy without deduction of depreciation? Different insurance companies have different rules and regulations for the total number of zero-dep claims.

Ideally, it is limited to two claims in one policy year. Some companies provide more than two claims or an unlimited number of claims for some particular manufacturers and or models. Insurance companies have a limit on the number of claims to avoid making claims on every small dent in the car.

What is not Covered? or Exclusions

Mechanical Breakdown: The insurer is also not liable to pay any claim in respect of mechanical breakdowns or electrical breakdowns.

Accessories: If some of your car accessories are not part of the standard product then maybe it is not covered under this add-on.

Driving Under the Influence of Alcohol or Drugs: If the driver of the car is influenced by intoxicating alcohol or drugs at the time of the accident of the car then the claim is declined by the insurer.

Repairing Cost: There are many kinds of repairs in the car and it totally depends on damages or requirements. All are not covered by the zero depreciation policy. Some repair costs are covered and some are not.

Cost of oil, Greece, coolant, other consumable items, damage to engine through oil leakage, and or water ingression are also not covered in this add-on. These may be covered through another add-on.

Some of the above exclusions may vary from insurance company to insurance company. The exclusion of the basic comprehensive policy is applicable here also. So read the terms and conditions of your policy.

Who Should Buy Zero Depreciation Cover

Ideally, this add-on should take by everyone but totally depends on you only. There are a few important ideal situations when you should consider zero depreciation in the car insurance policy.

Accident Prone Area

People who are living in accident-prone areas may have more chances of getting damages in their cars. A single hit in the car may cost a huge amount. Ideally should opt for zero dep in this kind of area.

New Cars

Most people who are insurance experts will always advise taking zero depreciation cover while purchasing a new car. I also agree with this the most important situation when you must take this add-on.

Expensive Cars

In luxury cars even, a small dent can cost a big amount. A luxury car has very expensive parts in it and its damage can cost much more than a normal small car. So, in this segment, it is always advisable to opt for a zero depreciation add-on.

New Drivers

If a car driver is new or inexperienced then chances of an accident are more likely. And this add-on will be very helpful to save lots of money in case of any damage through accident.

Worry about small dents

If you are really very worried about any small dent or bump in your car then you should opt for this add-on.

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