What you need to know about the Depreciation Factor in Car Insurance?

Heard a lot about depreciation? Want to know what it indicates? Know all about the depreciation factor & its impact during claims and the way to deal with it.
Depreciation in car insurance
The standard comprehensive cover ensures the protection of the car in case of an accident, any natural or human-made calamities along with third party cover. In this case, the insurers will consider the current value of the car and its parts before settling the claim. This value inevitably decreases as soon as you drive your car out of the showroom due to a factor called depreciation factor. 

Insured Declared Value (IDV)

Before we further understand the depreciation it important to understand the concept of IDV. It is simple and an important factor to consider while buying insurance cover. IDV is value, of your car or the maximum coverage offered for repairs in case of car damage. This value is different for different insurers and depends make, model and age of the vehicle. Higher the IDV indicates a higher cover.

When car ages your insurance coverage reduces and so does your IDV hence the net value of the repairs that you would get. Many people who are not completely aware of this fact believe they are insured for the full value of the car, no matter in which year they make a claim. Unfortunately, this is not true, and they feel disappointed at a later stage when they make a claim. Let us understand how the depreciation factor works.

Rate of Depreciation

As stated earlier the value of your car decreases right after you drive it out of the showroom. While the rate of depreciation is different for different parts, a cumulatively 5% depreciation is assigned to your vehicle every year. That means, in normal condition, the value of your car after one year will be reduced by 5%  and after ten years will be reduced by 50% approximately. The older the car, the lower is value. Most insurers consider this factor at the time of settling a claim for you.

Different Rates of Depreciation for Different Parts

Parts of the car and depreciation:

  • For glass or parts made of glass – 0%
  • For fibreglass components – 30%
  • For all the rubber parts, tyres and tubes, plastic parts, batteries and air bags, and nylon – 50%

Cumulative depreciation:

Age of the Vehicle% of Depreciation
Not exceeding 6 months0%
Exceeding 6 months but not exceeding 1 year5%
Exceeding 1 year but not exceeding 2 years10%
Exceeding 2 years but not exceeding 3 years15%
Exceeding 3 years but not exceeding 4 years25%
Exceeding 4 years but not exceeding 5 years35%
Exceeding 5 years but not exceeding 10 years40%
Exceeding 10 years50%

Remedy

To help the car owners save against the reducing cost, many insurers offer bumper to bumper or zero depreciation cover as a part of the comprehensive cover up to a certain age of the car.

  • Zero Depreciation Cover – As the name suggests, this cover promises to provide complete compensation for the car irrespective of its age, i.e., without decreasing the value. In the case of damage, the owner can claim the entire amount of the vehicle. It is extremely beneficial in case you own a luxury car for which parts are expensive. In most cases, this insurance cover is highly recommended.

Being acquainted with the depreciation factor can be highly beneficial when you head on to understand the impact it can make on your insurance claim. It further provides you with ways to offset its effect by choosing insurance covers smartly.

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