• A car insurance policy is a mandatory legal obligation that you, as an owner of a vehicle, must adhere to. While possessing the registration of your vehicle and its PUC is necessary, having an insurance plan serves as an additional requirement for securing its protection. This obligation is established by the Motor Vehicles Act of 1988, making adherence compulsory.

• Car insurance policies are generally categorized into two types, namely a third-party plan and a comprehensive policy. When choosing between the two, it is essential to ensure that your policy includes third-party coverage. This third-party coverage is required by law but is often restricted to legal liabilities only. Consequently, most purchasers prefer comprehensive insurance coverage.

• With a comprehensive policy, you can protect your vehicle from damages along with coverage for legal liabilities. Therefore, it effectively provides dual advantages of financial security and legal compliance. Comprehensive plans, while delivering overall protection for damages incurred by both the policyholder and third parties, do come with certain restrictions. It is through depreciation that the compensation amount for such damages is influenced. To bypass this limitation, a zero-depreciation add-on is a useful rider.

What Is a Zero Depreciation Cover And What are Its Advantages?

• Depreciation is a process that all motor vehicles undergo, reducing the value of the vehicles over time. When an insurance claim is filed, the insurer first accounts for this depreciation before providing the eligible compensation. This is where a zero-depreciation add-on becomes beneficial.

• Often referred to by various names, such as nil depreciation cover, bumper to bumper cover, zero dep policy or a zero-depreciation add-on, it negates the impact of depreciation on your insurance claim, thus offering a larger insurance pay-out. As a result, a zero-depreciation cover is a vital add-on to consider when purchasing a comprehensive car insurance policy.

• The advantage of choosing a zero-depreciation cover is that you can gain additional protection for spare parts and repair costs in addition to a higher claim settlement for your insurance coverage. Since a zero-depreciation plan is an additional rider, it does lead to an increase in the premium. However, the benefits significantly outweigh this nominal increase in cost. When selecting one, you can utilize the convenient tool called a car insurance calculator to determine your premium amount. You should also keep in mind that no coverage for zero depreciation car insurance is available after 5 years in India.

Also Read: Third-Party Liability Insurance Coverage – Everything You Must Know About Your Motor Insurance

What is the Calculation of Depreciation For Plans with a Zero-Depreciation Add-On?

• The Insurance Regulatory and Development Authority of India (IRDAI) has established various rates for spare parts to calculate depreciation. For example, rubber, plastic, nylon spare parts, and batteries are depreciated at a rate of 50%, whereas fiber parts are depreciated at a 30% rate.
• For metal spare parts, the depreciation rate begins at 5% after the initial six months, continuing until one year. Subsequently, for each following year, an additional 5% depreciation applies until the 10th year, reaching 40% by the end of the 10th year. For any duration beyond 10 years, the rate is fixed at 50%.

• Apart from these designated spares, the depreciation correlates directly to the Insured Declared Value (IDV) of your car insurance policy, which is detailed below.

• However, for vehicles that are older than five years, or for models that the manufacturer has discontinued, such an IDV is determined mutually between the insurance company and you, the policyholder. Thus, coverage for zero depreciation car insurance after 5 years is generally not available.

Also Read: PUC Certificate: Everything You Need to Know

What Happens to Zero Depreciation Car Insurance After 5 Years in India?

• In general, the zero-depreciation add-on is not available after the car exceeds 5 years of age. In certain cases, this may be offered until the car reaches seven years of age. Although there is no overarching rule from the regulator indicating such a coverage limitation, it is influenced by each insurance company’s underwriting policy. Therefore, it is advisable to consult with the insurance company regarding any extension of coverage beyond the specified duration of five or seven years during the car insurance renewal process. Insurance is a subject matter of solicitation. For further details on benefits, exclusions, limitations, terms and conditions, please review the sales brochure/policy wording thoroughly before finalizing a sale.

Conclusion

• Zero-depreciation car insurance is typically not available after five years, although some insurers may provide it for up to seven years. Since this add-on notably increases claim payouts, it’s crucial to inquire with your insurer at the time of renewal. Grasping depreciation and IDV aids in making well-informed decisions regarding coverage, thus ensuring sustained financial protection for your vehicle. Always examine policy terms prior to renewal.

Also Read: Bumper To Bumper Car Insurance Policy

FAQs

1. Can I obtain zero-depreciation car insurance after five years?

Typically, zero-depreciation cover is not offered after five years; however, some insurers might extend it to seven years.

2. Is it possible to negotiate with my insurer for zero-depreciation cover beyond five years?

Certain insurers may allow extended coverage depending on their underwriting policies, so it’s advisable to check during renewal.

3. What occurs if I lack zero-depreciation cover after five years?

Without zero-depreciation cover, claim settlements will rely on the depreciated value of car parts, thereby decreasing the payout.

4. What is the additional cost for a zero-depreciation add-on?

The cost differs by insurer but typically raises the premium by 15% to 20%.

5. Which parts are included in zero-depreciation insurance coverage?

It covers fiber, plastic, rubber, and metal components, but consumables like oil and coolant are generally excluded.