What Happens to Zero Depreciation Car Insurance Cover After 5 Years?

A car insurance policy is a legal requirement that you, as a vehicle owner, must comply with. While the registration of your car and its PUC is something you need to have, an insurance plan is an additional requirement to ensure its protection. The Motor Vehicles Act of 1988 lays down this requirement, and hence, compliance is mandatory. Car insurance plans are broadly classified into two types, i.e., a third-party plan and a comprehensive policy. While selecting either of the two, you need to make sure that your policy has third-party cover. Such a third-party cover is mandatory but is often limited in its scope to just legal liabilities. Hence, most buyers opt for comprehensive insurance cover. With a comprehensive policy, you can shield against the damages to your car along with a cover for legal liabilities. Thus, in effect, offering dual benefits of financial protection as well as legal compliance. Comprehensive plans, while offering all-round protection for damages to both, the policyholder as well as third-party, have certain limitations. It is by way of depreciation that impacts the compensation paid for such damages. To circumvent such a limitation, a zero-depreciation add-on is a nifty rider.

What is a zero depreciation cover and what are its advantages?

Depreciation is a phenomenon that all motor vehicles are subject to, which lowers the value of the vehicles over a period of time. When a claim for insurance is raised, the insurer first accounts for such depreciation and then pays the eligible compensation. Here’s when a zero-depreciation add-on comes to the rescue. Known by different names like nil depreciation cover, bumper to bumper cover, zero dep policy or a zero-depreciation add-on, it eliminates the effect of depreciation in your insurance claim, thereby offering a higher insurance pay-out. Thus, a zero-depreciation cover is an essential add-on to consider when you buy a comprehensive car insurance policy. The benefit of opting for a zero-depreciation cover is that you can avail additional coverage for spares and repairs cost in addition to higher claim settlement for your insurance cover. Since a zero-depreciation plan is an add-on rider, it does increase the premium. However, the benefits weigh far greater than such an increase in its cost. When selecting one you can use the nifty tool called car insurance calculator to compute your premium amount. You must also remember that no coverage is available for zero depreciation car insurance after 5 years in India. *Standard T&C Apply

What is the calculation of depreciation for plans with a zero-depreciation add-on?

Insurance Regulatory and Development Authority of India (IRDAI) has defined the different rates for spares to calculate the depreciation. While rubber, plastic, nylon spares, and batteries are depreciated at 50%, fibre parts are depreciated at a 30% rate. For metal spares, the depreciation rate starts at 5% after the first six months, till one year. Then, for each subsequent year, an additional 5% depreciation is applicable till the 10^th, year taking it to 40% at the end of the 10^th year. For any period beyond 10 years, it is set at 50%. Other than these specified spares, the depreciation has a direct correlation to the Insured Declared Value (IDV) of your car insurance policy, which is explained as follows:  

Age of the car	Depreciation for calculating IDV
Not greater and equal to 6 months	5%
More 6 months to 1 year	15%
More 1 year to 2 years	20%
More 2 years to 3 years	30%
More 3 years to 4 years	40%
More 4 years to 5 years	50%

  However, for vehicles older than five years, or the models that are discontinued by the manufacturer, such an IDV is decided mutually by the insurance company and you, the policyholder. Thus, the cover for zero dep car insurance after 5 years is not available generally.

What happens to zero depreciation car insurance after 5 years in India?

Generally, the zero-depreciation add-on isn’t available after the age of the car crosses 5 years. In some cases, the same is available until the age of seven years. While there is no general rule by the regulator that specifies such a limitation of coverage, it is based on the underwriting policy of every insurance company. Thus, you need to check with the insurance company for an extension of coverage beyond the said duration of five or seven years during the car insurance renewal. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.