Undoubtedly, any vehicles you invest in today will diminish their value with time. It is treated as a loss or an expense for the owner. So, even if you buy premium or cheap car insurance in India, they will consider this diminishing value or the value of wear and tear while providing the claim to the policyholder.
However, imagine a scenario where you buy a brand new and luxurious car and a four wheeler insurance. And after three months, a new model comes into the market, due to which the current value of your car model decreases.
Unfortunately, in the same month, you met with an accident. Now, if they consider the depreciated value of your car, you will have to suffer a great financial loss. So, to avoid such a situation, Zero depreciation cover comes into play.
This article discusses what depreciation is and, how it is calculated, how it influences the coverages and benefits of opting for the zero depreciation cover.
What is Depreciation and How it is Calculated in Car Insurance?
Simply put, depreciation is the reduction of the value of your car due to wear and tear, accumulated mileage, and vehicle ageing.
To calculate depreciation for insurance, many insurance companies use methods like Actual Cash Value (ACV) or Replacement Cost Value (RCV) purposes.
- Actual Cash Value (ACV):
- Formula: ACV = Original Cost – Depreciation
- Depreciation factors: Age, mileage, condition, and market value.
- Replacement Cost Value (RCV):
- RCV is the cost to replace a damaged or stolen car with a new one of a similar make and model.
- No deduction for depreciation.
- It may result in higher payouts but potentially higher premiums.
What Factors Affect The Depreciation in Car Insurance?
- Age and Kilometres: Direct correlation; older age and higher kilometres increase depreciation.
- Condition and Maintenance: Well-maintained cars depreciate less; regular upkeep is vital.
- Make/Model: Trusted brands/models have lower depreciation and higher pre-owned value.
- Fuel Type: Fuel-efficient cars (hybrids, electric) depreciate more slowly.
How Does Depreciation Influence Car Insurance Coverages?
1. Value of Vehicle
Depreciation affects the car’s overall value over the period, directly impacting the coverage needed; the insurance provider companies determine this coverage on the current diminishing value.
2. Coverage Limits
Depreciation also affects the coverage limit of your car insurance online policy, due to which you have to buy the lower coverage limits for older vehicles.
Depreciation significantly affects the reimbursement when the car parts need any repair or replacement, as the insurance provider provides the claim by reducing its depreciation. It leads to lower claims.
4. Comprehensive and Collision Coverage
Depreciation also affects the payout in the event of total loss and damage to your car. Insurance companies settle your total loss claim by reducing the depreciation value instead of providing the actual original cost of your car.
5. Premium Cost
Due to the influence of the depreciation, the value of your vehicle also decreases. However, when you take the insurance of the less valuable assets or vehicles, you ultimately have to pay lesser premiums.
What is Depreciation Cover in Car Insurance
Depreciation covered in four-wheeler insurance means the insurance companies will not consider the amount of depreciation when providing the claim on your car insurance.
It is what ultimately affects the premium cost of your online car insurance policy.
When Depreciation is Accounted for:
- Included in most comprehensive car insurance policies.
- Provides compensation for the diminished value of the vehicle after an accident.
- Covers the cost of repairs accounting for depreciation.
When Depreciation is Not Accounted for:
- Excluded from many standard car insurance policies.
- Current market value is considered in claims settlements.
- Depreciation is often excluded from collision and comprehensive coverage.
How Zero Depreciation Cover Helps in Removing the Impact of Depreciation in Car Insurance?
Here are some of the key advantages of the Zero Dep. cover, which will help to remove the influence of the depreciation from your car insurance policy coverages and claims:
- No deduction for depreciation in car insurance claims.
- Ensures full reimbursement for repair or replacement costs.
- Ideal for new cars to counter depreciation impact.
- Saves money, especially for luxury vehicles with expensive parts.
Understanding depreciation and its impact will help you consider it a major factor when you buy a car insurance policy and its coverage from reliable companies like Tata AIG.
However, adding the Zero depreciation cover is recommended to remove the impact of depreciation and receive the full online car insurance claim if any unexpected happens with your car.
So, knowing the various factors and their impacts will help you to make the right decision and save you from the minute surprises.