Nitin Kumar, Head of Motor Business at PolicyBazaar explains that claim amounts under zero depreciationpolicies are higher than average claims due to the absence of deductions.Claims under policies without zero depreciation average between Rs 13,000 and Rs 14,000, whereas those with zero depreciation policies see claim amounts rise to Rs 21,000 to Rs 22,000.
“While the size of claims has not increased significantly, the frequency has risen as car owners are now more conscious of the external appearance of their vehicles, with more people purchasing high- end cars. Another indicator of this consciousness is the increasing adoption of ceramic coating compared to earlier,” he added.
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What is a zero-dep insurance policy?
The depreciation value of a car is taken into consideration when filing for an insurance claim. The insurer analyzes the damage sustained by the car and the value is excluded from the final claim amount that the insured receives. The depreciation value is associated with different non-durable materials like metal, plastic, glass and fiber. Estimating the rate of degradation of these materials reflects the overall depreciation of a car.
A zero depreciation cover is an extra add-on in your insurance policy which covers this depreciation for the insured car. The zero-dep cover, also known as bumper-to-bumper cover, ensures that the insured party does not face depreciation in the insurance coverage. Hence, the insurer does not deduct any depreciation value while covering the claim amount.
How it benefits you
As an example, if the overall cost of damage repair for your car is Rs. 10,000 for which you have filed an insurance claim, the insurer will first determine the depreciation rate associated with the damaged parts and thereafter, will calculate the payable claim sum. Let’s say that the insurer calculated the depreciation rate as 20%, the amount offered to you as claim settlement will be 20% of Rs 10,000 i.e. Rs. 8,000.
In contrast, if you have a zero depreciation car insurance policy, the insurer will offer the entire amount of Rs. 10,000 as your claim amount. Do note that the insured party will have to pay nominal filing charges in a zer-dep cover, not included in the claim amount. Hence, a zero-dep cover reduces your out-of-pocket expenses while making a claim.
Things to keep in mind
A zero depreciation cover is offered as an optional extra with your insurance policy till the vehicle is up to five years old (or seven years in some cases). The add-on is feasible for newer vehicles in order to have peace of mind. However, the insurance premium rises up when one opts for a zero-dep cover.
The premium depends on the Insured Declared Value (IDV) of the car, but a zero-dep insurance generally costs about 20% higher than a policy without the add-on. As a rule of thumb, the older the car, the higher the zero-dep premium. Moreover, the premium for a zero depreciation cover will be higher if the insured resides in a place where road accidents are frequent or a place prone to natural disasters. The cost of a zero-dep premium is determined by the location where the car is driven.
Generally, one can make two claims in a policy year under zero depreciation cover. However, in the case of a comprehensive car insurance without a zero-dep cover, there is no limit on the number of claims a car owner can make under this policy during the policy period.
Do you really need it?
Cars are our prized possession, and a great amount of emotion is associated with car buying. Most of us treat new cars like our family members, and hence, opting for a zero depreciation policy can ensure that your car stays in pristine condition without the owner having to worry about paying a hefty amount to claim compensation. A zero-dep cover reduces the financial stress in the case of an accident, and can prove to be extremely beneficial, especially for premium and luxury vehicles.
Would you pick a zero-dep add-on in your new car’s insurance policy? Let us know in the comments down below.