What is zero depreciation car insurance and its importance?

What is zero depreciation car insurance and its importance


Zero depreciation cover is one of the most useful add-ons that insurance companies provide. If a policyholder purchases this cover, then the insurer can’t apply the depreciation rate while determining the cover amount. Read on to know more about it.

Cars are depreciating assets, and as they age, their value reduces. Insurance providers consider the reduction of value while determining the claim settlement amount. They settle claims after deducting the depreciation amount. However, with zero depreciation cover, a policyholder doesn’t have to worry about the depreciation factor.

Let’s look at an example to understand it better-

Mr Patel meets with an accident, and his car gets damaged. He files for a claim to cover the cost of repairs, which is Rs. 22,000. The insurer then determines the depreciation rate and deducts Rs. 4,000 from the coverage amount.

Read more: Ten Tips For Finding The Right Car Insurance

If Mr Patel doesn’t have zero depreciation cover, then he will have to pay Rs. 4,000 from his pocket. However, the insurer will pay the entire cost of repairs if Mr Patel is insured with zero depreciation cover.

Thus, a zero-depreciation cover, which is also commonly referred to as nil depreciation cover allows car owners to reduce their liability in the event of a claim by providing complete coverage without calculating the depreciation amount. An individual can buy this add-on when he/she is purchasing car insurance online or offline.

Here are a few differentiating factors between zero depreciation cover and standard car insurance-

  Zero-Depreciation Cover Standard Car Insurance
Claim Settlement The policyholder can receive the full claim amount. Depreciation will not be factored while settling a claim. Depreciation is calculated while determining the claim amount. Therefore, the insured person must shell out money to repair his/her vehicle.
Premium As zero-depreciation cover is an additional benefit, the customer will have to pay a higher premium amount. The premium amount is comparatively lower.
Vehicle’s Age Generally, insurance providers only cover new cars. There is no such condition for standard car insurance policyholders.
Damages Incurred by Fibre, Glass, Nylon, Plastic, etc. Parts Covered. Not covered.

Factors that Impact the Premiums of Zero Depreciation Cover

  • Age of the Vehicle

The older the car, the higher the premium. However, most of the insurance companies don’t offer this add-on for vehicles older than five years.

  • The Policy Buyer’s Residence

The premium will be higher for policy buyers living in accident-prone areas.

Who Should Purchase Zero Depreciation Add-on?

  • People who are planning to buy a new car should consider purchasing zero-depreciation cover.
  • This add-on is especially beneficial for inexperienced drivers.
  • Individuals with expensive cars should purchase zero-depreciation cover to shield themselves from the high cost of repairs.

Exclusions of Zero Depreciation Cover

  • Zero-depreciation cover can only be availed for a specific number of times during a policy term. This limit varies from one insurance company to another.
  • Regular wear and tear to cars and car parts will not be covered under zero-depreciation cover.
  • A policyholder driving without a valid driving license will not be covered.
  • Damages caused due to mechanical breakdowns will not be covered under zero-depreciation plan.
  • An insured person driving under the influence of alcohol or drugs is excluded from the cover.

Thus, a zero-depreciation cover is a valuable add-on to your car insurance policy as it helps you reduce your financial liability in the event of a claim.