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What is depreciation?
Depreciation is the reduction in the value of the asset due to the passage of time. Time isn’t the only factor that impacts depreciation, but also its use. Thus, usage and time together result in depreciation. To simplify the concept of depreciation, it is the difference in price at the time of selling your car since it was purchased. Routine wear and tear resulting in depreciation not just impacts the selling price of your car, but also the Insured Declared Value or IDV.Does depreciation impact your car insurance premium?
As discussed above, the depreciation on your car has an impact on the Insured Declared Value. The age of the vehicle, its wear, and tear due to routine use, and its useful life are what determine the overall depreciation rate. The impact of depreciation on your car insurance prices lowers the compensation that is paid by the insurer for a claim. The components that require replacement are depreciated based on their age, and thus, a lower compensation is paid. *Standard T&C ApplyAre there any standardized rates of depreciation specified by the IRDAI?
Yes, the Insurance Regulatory and Development Authority of India (IRDAI) has laid down standardized car depreciation percentage for individual spares. You can visit the official website of IRDAI for further details. Hence, you may receive different amounts of compensation for every spare. Here are some spares for which depreciation rates are mentioned:- Rubber, nylon, and plastic spares have a depreciation rate of 50%
- Depreciation for the battery of the vehicle is set at 50%
- Fiberglass components have a depreciation rate of 30%
| Age of the car | The depreciation rate for determining the IDV |
| Not more than 6 months | 5% |
| Greater than 6 months but not more than 1 year | 15% |
| Greater than 1 year but not more than 2 years | 20% |
| Greater than 2 years but not more than 3 years | 30% |
| Greater than 3 years but not more than 4 years | 40% |
| Greater than 4 years but not more than 5 years | 50% |
