How Zero Depreciation Motor Insurance Can Cut Claim Deductions

Navigating through the fine print of coverage and claims could be an intimidating task for many. When buying insurance, especially, there are certain areas that may not be covered in the basic policy.

Despite going through the fine print, there may be certain deductions that apply when a claim is made. One of these deductions is for depreciation.

Especially for older cars, this cut might add up to a certain percentage of the claim and get deducted. This deduction can be done away with to an extent if the policyholder is willing to take an add-on.

A zero-depreciation add-on to a comprehensive policy ensures that there are no depreciation-based deductions when a claim is made, said Sandeep Saraf, renewals head for motor insurance at Policybazaar.

To illustrate, if the car was bought three years ago, there is a depreciation that applies to the claim amount.

If a claim worth Rs 50,000 is made, the insurance company will deduct 30% for depreciation, and one might only be paid around Rs 35,000 for the claim.

"If you have a zero depreciation add-on, there is no such deduction. But other costs that come under Rs 1,000—that the customer will have to bear," said Saraf.

Though this add-on is not limited to luxury cars or certain makes, there are conditions that apply.

"Every insurer has their own terms and conditions to give their zero DEP coverage; mostly there is a five-year policy," said Saraf.

There are conditions that apply based on the value and age of the car.

"Add-ons are offered across all makes. If you go higher on age and luxury brands, sometimes zero depreciation may not be available. For normal makes, like Hyundai, a lot of insurers offer it for up to 10 years now," he added.

The add-on would usually be added to the monthly premium, and this amount may depend on certain factors.

"Premium depends on multiple things. It can depend on the value of the car. There is an insured value declared. It is a variable value," said Saraf. The value of the car is clearly outlined when the add-on is bought by the policyholder.

"It may also depend on how old your car is," he added. Older cars tend to have higher premiums as the risk of issues is higher than newer cars.

"For a three-year-old car, the premium might be around Rs 700," he said. Paying this cost on a monthly basis might help cut a deduction that is bound to be made from a claim.