Taking Cover. Why zero depreciation insurance makes sense

A new car is more valued than an older one owing to depreciation on glass, plastic, metal, etc., as the car gets older. Each part has a different rate of depreciation. As a vehicle ages and depreciates, repairs on these parts may become increasingly expensive.

Hence, to protect yourself, you can consider a zero depreciation insurance at the time of buying your vehicle.

If you are a new car owner and are learning to drive, the chances of meeting with an accident are higher.

Therefore, a zero depreciation cover is especially useful in case of major damages.

Even if you’re an experienced driver, a zero depreciation cover will come in handy when you are upgrading to a high-end vehicle that may cost a bomb. .

Here’s what you need to know about zero depreciation covers:

Your car insurance provider typically assigns an insured declared value (IDV) to your vehicle. This is essentially the market value of the vehicle, accounting for depreciation. Your vehicle depreciates as per an annual schedule. So, in case you suffer a total loss or theft, your insurer would compensate you the latest IDV and not the purchase price of the vehicle. To counter the deficit in value caused by depreciation, a zero depreciation add-on is offered along with comprehensive insurance policies.

Such policies are also called zero depreciation policies. They offer complete coverage without factoring in depreciation. Thus, in case of repairs under a zero depreciation cover, the insurer will provide 100 per cent of the repair costs. Keep in mind that the time to buy a zero depreciation cover is when your car is brand new. Insurance companies would not be able to provide this facility to aged vehicles, which naturally would have experienced wear and tear and, possibly, even accidents.

Any insurance product that covers above and beyond the basic features will carry higher premium costs. A zero depreciation cover that maintains the value of your vehicle will naturally cost you more than a plain vanilla car insurance. Typically, additional premium expense tends to be around 15-20 per cent of a standard car insurance base premium.

For example, for a Maruti Swift VDI 2016 Variant with Mumbai registration, premium on a comprehensive policy varies between ₹9,500 and ₹12,000, whereas premium on a zero depreciation policy is ₹13,500-₹17,000. Though it is more expensive, the potential for payback after damages is also much higher with such an insurance plan.

A zero depreciation cover provides a higher level of financial security to the insured. This increases the risks for the insurer, who does not want to entertain frequent claims over even minor repairs.

To avoid frivolous claims, zero depreciation covers restrict the number of claims you can make in a year. Read your policy document carefully to understand the exclusions.

As is the case with any insurance purchase, you must compare all options available across insurers rather than pick the first one that is forced on you by your dealer or agent.

You must compare your options not just by price, but also by features, exclusions and claim settlement ratio.

The writer is CEO, BankBazaar.com

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