Confused about what is depreciation factor in car insurance and why you cannot get the claim amount? Here check this out.
It is extremely important for each one of us to understand depreciation so that we do not face any issues during claims. For those who are very new to this concept, it is the factor which indicates the decrease in the value of your car with time. As soon as you drive your car out of showroom depreciation factor comes in picture. Thus, it is essential that we learn the result of this factor with respect to our car insurance policy.
Rate of Depreciation & its Impact on IDV
Insured Declared Value or IDV is the total value of the car which will be compensated by the insurance company in case it is lost or stolen. As mentioned above, this factor acts on this value as soon as you move the car out of the showroom. The rate or the amount of depreciation depends on the age of the car. Older the car, higher is the decrease in value.
| Age of vehicle | % of Depreciation |
| Not exceeding 6 months | 0 |
| Exceeding 6 months but not exceeding 1 year | 5 % |
| Exceeding 1 year but not exceeding 2 years | 10 % |
| Exceeding 2 years but not exceeding 3 years | 15 % |
| Exceeding 3 years but not exceeding 4 years | 25 % |
| Exceeding 4 years but not exceeding 5 years | 35 % |
| Exceeding 5 years but not exceeding 10 years | 40 % |
| Exceeding 10 years | 50 % |
Overall the rate of depreciation based on the age of the car is standard across the industry. Up to 5 years the decrease in value of the car increases by 5% every year. Hence at the time of claim, the value of your repairs is accordingly calculated.
Rate of Depreciation for different parts
The amount of depreciation is different for different parts of your car. Given below is a more detailed explanation of the above values. The rate at which depreciation factors in is different for different parts of the car. Given below are a few examples:
- For glass or parts made of glass – 0%
- For fibreglass components – 30%
- For all the rubber parts, tyres and tubes, plastic parts, batteries and airbags, nylon – 50%
Solution for the Decrease
To help the car owners save against the cost of depreciation on the part of car, many insurers offer zero depreciation or bumper-to-bumper add-on cover. Also, for saving the insured against depreciation in case of total loss or damage to the car, the insurers offer return to invoice add-on cover.
The add-on covers are available if you pay some extra amount over and above the premium of the standard comprehensive policy.
Standard Comprehensive Cover
It is the type of car insurance in which covers, car damages due to natural calamity or an accident as well as any liability for a third party. While a comprehensive cover offers compensation of the car repair expenses, it doesn’t cover depreciation which is offered by the add-on cover.
Zero Depreciation Cover
As the name suggests, this insurance cover takes care of the depreciation factor and promises to provide the complete compensation for the car irrespective of the age of the car, without taking into account the depreciation factor. In case of a damage, a car owner can claim the entire amount of the car and factors such as car age, wear and tear, conditions of the parts do not come into play. This is extremely beneficial in case you own a luxury car for which parts are very expensive. In most of the cases, this insurance cover is highly recommended.
Return to Invoice Cover
When it comes to getting compensation for complete loss or damage to the car, the return to invoice add-on cover saves you against the cost of depreciation.
Summary
Your standard car policy will not cover depreciation factor unless you opt for the add-on covers like return to invoice or zero depreciation cover.