Yes, that’s the burning question for most of the car owners. And why shouldn’t it be, for it is human nature to quench the thirst of a curious mind with a logical solution before making a decision.

And of course, the decision must be right; it should be one that we are proud of, no matter how small or big.

If you are facing the same question of whether or not to buy the zero depreciation car insurance policy or as an add-on cover you shall find the answer here by the end of this post.

If you are looking for a straightforward answer as yes or no – the answer is yes.

But if you want to know all the logical answer and few suggestions as to maximize the benefit from Zero Depreciation or Bumper to Bumper cover then…

Stay with me…

What Depreciation means in context to car insurance?

Depreciation is a term tagged with more or less everything we buy, be it electronics, gadgets, equipment’s, tools, vehicles, etc.

It simply means the decrease in the price than the original price at which it was bought as a brand new. The moment it comes out of the shop, showroom or market the price doesn’t remain the same anymore.

Same is with our beloved car.

The price of the car keeps on decreasing with age, time and usage. The reason being that the parts – metal, fiber, nylon, glass, etc. are not the same as they were new.

It’s called depreciated value. No matter how much you love your car and hate this term, but the depreciation factor sticks to it like flawless glue.

What does zero depreciation car insurance exactly means?

The replacement cost of car parts at the time of claim is not covered fully by the insurance companies due to the depreciation factor. Only depreciable cost attached to the car parts is covered. The rest of the cost apart from the depreciable cost must be borne by the policyholder.

For example, consider any fiber car parts, 70% of the cost will be reimbursed by the insurer, the rest of the 30% will be paid out by the policyholder. As 30% depreciated amount is deducted. Likewise, for rubber, plastic, nylon and fiber and metal parts each have different depreciation factors.

Here’s a simple table where you can see the Depreciation percentage against car parts:

Depreciable Car Parts Deducted Depreciation
Metal Parts 5%
Rubber, Nylon, Plastic Parts 50%
Fiber glass 30%
In case of Repairing cost (Material Only) 50%
In the case of Repainting Cost (Consolidated Cost) 25%

 

Rate of depreciation for all other parts (Other than the parts mentioned above) including wooden parts are as follows:

Age of the vehicle % Depreciation
Not exceeding 6 months NIL
Exceeding 6 months but not exceeding 1year 5%
Exceeding 1year but not exceeding 2years 10%
Exceeding 2years but not exceeding 3years 15%
Exceeding 3years but not exceeding 4years 25%
Exceeding 4years but not exceeding 5years 35%
Exceeding 5years but not exceeding 10years 40%
Exceeding 10years 40%

 

Difference between the Comprehensive and Zero Depreciation Car Insurance

Comprehensive policy is sufficient enough to cover the Own Damage incurred to the insured vehicle.

The maximum amount that the insurance company will reimburse at the time of claim is the Insured Declared Value (IDV) of the vehicle. But due to depreciation, the cost of repairing or complete replacement of depreciable car parts such as rubber, plastic, metal, glass, nylon, fiber is not fully covered by the insurance company. The depreciated deducted price is paid by the policyholder.

Key Points Comprehensive Policy Zero Depreciation
Claim Settlement Based on IDV and Depreciation not covered Covers Depreciation
Depreciable Car Parts Cost Not fully covered Fully covered
Vehicle Age Suitability Up to 15 years of age* Up to 5 years of age+
Premium Lesser than the Zero Dep 15-20% higher

*Note: After 15 years of age the vehicle must be re-registered. Some companies may provide insurance after 15 years.

+Note: Not all companies offer Zero Depreciation, some companies offer only up to 3 years of age. Please check the policy wordings and terms & condition.

Case Study

X and Y bought a new car of the same model, variant and price of 10 lakhs in Jan 2016.

X insured car with the Comprehensive Policy covering Own Damage, Third-Party liability cover. While Y paid a little higher premium and insured with a Zero Depreciation policy or add-on cover, covering Own Damage, Third-Party and additionally, the full cost of depreciable car parts.

Somewhere in the month of December, they both raised a claim due to a minor accident.

Both X and Y would receive the maximum amount as per the IDV, the cost of repairing and replacement of car parts.

But X had to pay a depreciated deduction cost for any replaced parts (like, rubber, plastic, metal, glass, fiber parts), that means even after having insurance the X would spend a considerably higher amount of money. Whereas, Y would have a peace of mind. And needn’t worry about paying a penny for repairing or replacing cost.

You may ask, but Y has already paid upfront, so it’s one and the same thing.

No. It’s not the same thing.

Assuming: A 10 Lakh car with a Comprehensive Policy of Rs. 12,000 and repair cost Rs. 36,000

Repair Cost Table:

Key Points Damage Cost %Depreciation Deducted Depreciation Cost
Metal Parts 15,000 5%* 750
Plastic Parts 14,000 50% 7,000
Fiberglass Parts 2,000 30% 600
Windscreen 2,000 0% 0
Labour 3,000 0% 0
Total 36,000 8,350

*Note: Considered as per the Metal & Wooden depreciation chart.

Y paid 20% higher of what X paid for Zero Depreciation. That is Rs. 2400 extra.

And you will the difference.

Key Points X (Rs.) Y (Rs.)
Premium Paid 12,000 14,400
Compulsory Deductibles 2,000 2,000
Repair Cost Paid 8,350 0
Total Money Invested                      22,530 16,400
Savings (Rs.)

(Workshop Cost – Total Money Invested)

36,000 – 22,530

= 13,470/-

36,000 – 16,400

= 19,600/-

 

Total Money Invested by X is Rs 22,530, whereas, Y invested Rs 16,400. However, the total cost for the damage was Rs. 36,000.

So you can see by investing 20% extra upfront Y saved 31% overall.

That’s where the real value of this Zero Depreciation add-on cover.

Companies offering Zero Depreciation

  1. Bajaj Allianz General Insurance
  2. ICICI Lombard General Insurance
  3. Reliance General Insurance
  4. New India Assurance
  5. HDFC Ergo
  6. Bharti AXA General Insurance
  7. TATA AIG General Insurance

Things to keep in mind (Exclusions)

There some exclusions that you must know and keep in mind which will help you to decide, whether Zero Depreciation is go-go or no-no.

  • Zero Depreciation is available for new cars
  • Generally, the companies offer Zero Dep maximum up to the vehicle age of 5 years
  • Maximum number of claims differ from company to company, but usually, it is restricted to one or two claims in a year
  • Repair due to age or normal wear and tear is not covered
  • Claim should be based on the perils mentioned in the Own Damage section of the policy wording
  • If you have an external fitted CNG gas kit, please ensure whether it is covered in the policy

 

Making the Right Decision: Should you buy or not?

If you are still in dilemma and wondering, here’s the simple guideline:

  1. If you have an expensive or luxury car
  2. If you bought a new vehicle
  3. If your vehicle is not older than 5 years (still verify as not all companies offer up to 5 years of age)
  4. If you are located in an accident prone area or heavy trafficked area
  5. If you have a new paid driver

With Zero Dep in your pocket, you can save ample of money at the time of a claim, especially, if you have bought a new car or own a luxury car, which may affect you financially otherwise.

I suppose, now you are in a position to decide whether to buy or not to buy Zero Depreciation Car insurance.

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