Suppose you have just purchased a brand new car. You have had countless dreams of driving this car earlier. But as soon you hit the road, you try to accelerate and end up crashing the car. Sounds like a nightmare! Right? If something like this really happens, you may wish for a savior. This is a car insurance comes in to rescue you from the financial burden due to the crash.

A car insurance policy is supposed to covers losses due accident, theft, flooding (natural calamity), vandalism (riots type situations), earthquakes, and other disasters. However, a standard car insurance doesn’t cover depreciation. But there is a way to get a cover against depreciating. Let’s find out:

But first, you need to understand that a car is essentially an asset that’s depreciating in nature. That is, it tends to lose its value over time due to wear and tear.

So the moment your dream car hits the road, it starts losing its value. Well not for you but in terms of asset value. Car insurance providers generally account for this depreciation when offering insurance plans.

Zero depreciation insurance, also known as nil depreciation or bumper-to-bumper cover, is an add-on to your car insurance policy that eliminates the impact of depreciation on your claim amount. Here’s how it works:

• Scenario 1, without zero depreciation: It’s like paying for repairs with your own money after considering the wear and tear of parts that translates to financial burden.
• Scenario 2, with zero depreciation: It’s like getting brand new parts for your car, even if it’s not new anymore. So no panic caused, hassle free situation .

How is depreciation calculated?

Depreciation is calculated on your car upon stressing on two factors. The first is wear and tear i.e. how much the car outer body has gone through the years – all the scratches, dents etc. The second is age, how long you had been hitting the road with your vehicle. Calculating the depreciation for each car based on its age and usage is a tedious task.

Keeping this in mind, the Insurance Regulatory and Development Authority of India (IRDAI) has set uniform depreciation rates for cars. This helps calculate the depreciation of vehicles with ease.

Benefits of zero depreciation car insurance

Higher Compensation in case of claim: For example, if you have a car that is three years old. The car’s value would have gone down by a certain amount (decided by the insurance company) over three years.

Now, imagine that you have a terrible accident or maybe just crashed into a divider while drifting. When you put claim for money from your insurance company for damaged parts or broken parts, they won’t give you all the money for it. Instead, they will only pay for the damaged parts after taking out the loss of value. You will have to pay the extra cost. Now not only you will have to wait to drive your baby after all the repair is done, you also have to shell out extra from your pocket and that definitely hurts. Here a zero-depreciation can help you avoid this problem completely.

An insurance policy with zero depreciation doesn’t take into account the decrease in value of the item when settling a claim. This means your insurance company will pay for all of the expenses to replace the damaged parts. Zero depreciation means you don’t have to pay for repairs to your car when it gets damaged. So you just have to wait to get it repaired and some countless checks to the service center!

Who should opt for Zero Depreciation Car Insurance?

• People with luxury cars (ROLCE ROYCE , BENTLEY some of the cars that hit you )
• People living in accident prone areas (you never know when a reckless driver or maybe a stray animal come and hit you)
• If you worry about small bumps and dents (even a small dot on a canvas looks bad)
• If you have a car with expensive spare parts (powerful exhausts, wings and expensive headlights)

Zero depreciation cover seems to be a useful add-on. It ensures you get higher payouts in case of a claim and ensures that repair costs do not burn a hole in your pocket.

What isn’t covered under zero dep insurance

• Wear and tear
• Damage to uninsured items like accessories and bi-fuel/gas kit, tyres
• Damage due to uninsured peril
• Damage due to mechanical breakdown
• Car’s age more than 10 years

That being said, now you have a fair bit of idea of additional add on to your insurance. However, zero depreciation insurance policies typically have higher premiums than standard car insurance. Opting for this type of insurance may be worthwhile because benefits greatly exceed downsides.

Disclaimer: The above content is for informational purposes only. Please consult your financial advisor before buying an insurance policy.