Nil depreciation or Zero Depreciation or Bumper to Bumper is an add-on available in the Own damage section of comprehensive section of Car insurance. Nil depreciation cover offers protection for your car against factoring the depreciation at the time of claim settlement. Car being a depreciating asset loses its value by each passing day due to the wear and tear as a result of usage.
Taking into account the higher rates of depreciation at a later stage, insurance providers usually limit zero depreciation insurance for 5 years. Even though, you should talk to your insurance company to see if they can offer a renewal after the 5th year of not making any claims or based on your customer loyalty.
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.
Advantages of Zero Depreciation Car Insurance:
- Save Money
Zero Depreciation add-on covers help save more money for customers as without Nil depreciation customers have to shell out more money for the claim. The cost of depreciation of parts is to be borne by the insured if the Zero Depreciation cover is not opted for. But with a 0 Depth car insurance cover, the cost of depreciation will be reimbursed by the insurance company.
- Higher Claim Amount
Opting for the Zero Debt car insurance helps the insured get a higher claim amount compared to that of the claim amount with comprehensive cover. The amount for depreciation can form a considerable portion of the overall claim amount.
- Less Investment More Coverage
The premium paid for Car insurance Zero Depreciation Cover is quite less compared to the coverage it offers. The premium for Zero depreciation in car insurance would normally be a percentage of comprehensive premiums. So more coverage can be obtained by paying fewer premiums. Zero dep car insurance premium calculators are used to arrive at the premium.
- 100% Coverage
Get optimum claim settlement to rubber, plastic, and metal parts of your vehicle without including any depreciation.
- New vehicle damage risk
Policyholders are worried about the accidental risk for their brand new vehicle some plans do not cover the total vehicle. Bumper to bumper insurance plan covers 100% of the damage cost for your new vehicle.
Concept of Depreciation in Car Insurance:
Depreciation is the reduction in the value of the car over a period of time due to wear and tear. The concept of depreciation is pretty much same in car insurance as is in any other asset. The rate of depreciation in car insurance is fixed by the IRDA and is same across the industry.
| Age of the vehicle |
Percentage of Depreciation(taken for calculating IDV) |
| 6 months and below |
5% |
| 6 months to 1 year |
15% |
| 1 year to 2 years |
20% |
| 2 years to 3 years |
30% |
| 3 years to 4 years |
40% |
| 4 years to 5 years |
50% |
| Above 5 years |
Mutually agreed b/w Insurer & Insured |
The value of the car taken for the purpose of insurance premium calculation is known as the Insured Declared Value (IDV). The IDV for the 1st year is taken as 95% of the ex-showroom price. This is due to the fact that the value of the asset is depreciated over the period of time.
The Insured Declared Value for the cars aged above 5 years is arrived by mutual agreement between the insurer and the insured:
For example if the ex-showroom price of a new car with age less than 6 months is Rs.10 Lacs, the depreciation rate is only 5% which means that the IDV would be Rs.9.5Lac. After a year the IDV drops to Rs.8.5Lac and so on. Most of the times, market value of the car depends on the IDV of the car at the time of selling the car. But in some cases if the car is well maintained, the re-sale value of the car could be much higher than the IDV.
How to calculate IDV of car? IDV is reduced 10% each year by taking the depreciation factor into consideration and the premium is calculated based on the IDV for that particular year. For 6 months and below 5% IDV is depreciated and for age of the car more than 6 months and less than 1year 15% IDV is depreciated.
Normally insurance companies offer Nil Depreciation or Zero Dep or Bumper to bumper cover for 5-7 years depending on the make and model of the car. It varies for each company and is to be decided by the customer if there is a need for the nil dip cover.
Point to be noted here is that the add-on premiums for Zero dip cover increases for each passing year. For example if the Zero dip premium for the first year is Rs.1k then for the next renewal it would be increased by at least 5-10%. This increase is due to the increase in depreciation with each passing year and the same would be reflected at the time of claim.
- Zero Dep can be taken for a maximum of 5 years vehicle age and in some cases up to 7 years. Customer should understand the need for Zero dip cover before selecting the add-on as the premium for Zero dip increases each year.
- For an insurance claim to be meaningful, it is better to have a Zero dip cover with the comprehensive section of the car insurance.
- Without a zero dip, almost 30-50% of the claim amount has to be borne by the customer.
For best online car insurance quotes please visit Our Portal and get the discounted online car insurance quotes using the car insurance premium calculator.
What Happens to Zero Depreciation Car Insurance Cover after 5 Years?
A car insurance policy is a legal requirement that all vehicle owners should fulfill. This will protect the car in case of any accidents, but they are separate from the registration and PUC (Pollution under Control) requirements. The Motor Vehicles Act of 1988 is the basis for this requirement and hence, compliance is a must.
While selecting a car insurance plan, you need to make sure it has third-party coverage. Car insurance plans are broadly classified into two types, i.e., a third-party plan and a comprehensive policy. 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.
How to Claim Zero Depreciation Car Insurance Policy?
- At the time of claim settlement, the depreciation on your car parts which mentioned in the policy wordings. As mentioned above you need to pay 50% depreciation on nylon, plastic, rubber parts including batteries, 30% on fiberglass components, and 5-10% on wooden parts and so on.
- In the case of basic car insurance plans, the insurer only reimburses the loss after deduction of the depreciation value of the replaced parts, unlike a nil depreciation car insurance policy.
- Now that you are aware of the benefits of zero depth car insurance, you can buy it as an add-on, why not go ahead and buy it.
Visit PolicyBachat and get the best Bumper to bumper car insurance or Zero depreciation quotes for your car from the top insurance companies and get up to 80% discount from the insurance companies. You can also check the company’s policy wordings and sales brochure for more information.
Specifications of Nil Depreciation Policy in Car Insurance:
| Parameters |
Zero Depreciation Policy |
| Premium |
Comparatively high |
| Max. number of claims |
Limited to 2 |
| Car age limit |
New Cars till years |
| Plastic (all parts made with plastic) |
100% covered |
| Glass – windshield, side glass |
100% covered |
| Metal Parts |
100% covered |
| Airbags (damaged due to accident) |
100% covered |
| Burglary |
Up to IDV covered |
| Claim Settlement |
IDV without depreciation is covered |
| Non-deductible spare parts/ labour charges |
100% covered |
| Cost of Repairing and Plastic Fiber |
Insurance Company Bears The Maximum Amount |
Do Zero Depreciation is Profitable?
- If you are aware of car insurance coverage and require optimum coverage to your vehicle then zero depreciation insurance online is profitable. Below cases makes your policy worth to opt
- For those who purchased a new vehicle, it is advisable to opt for a zero depreciation premium.
- High-end vehicles with expensive spare parts, these vehicle owners should opt for a bumper-to-bumper policy to get rid of huge damage risks.
- Insurance is mandatory if your residence is prone to theft or riots.
- If you are confident of making dents or bumps to your vehicle, it is suggested to get a zero depreciation policy.
- For drivers who have a worse driving history, this add-on is helpful.
The below practical example defines the importance of a zero depreciation insurance policy. Let us assume you met with an accident and the bumper is total loss damaged, calculate the out-of-pocket expenses to get repairs done.
| Premium |
With Zero Dep Car insurance |
Without Zero Dep Car insurance |
| Deductible |
1500 |
1500 |
| Repair Cost |
24000 |
24000 |
| Out of pocket expenses |
1500 |
13500 |
| Savings |
22500 |
10500 |
Conclusion:
It is hereby advised to the insured that it is in the interest of the customer to select the zero depreciation car insurance. In some companies, the zero depreciation car insurance after 5 years India is not available due to the fact that the depreciation percentage after 5 years is higher owing to the fact that the wear and tear of vehicles are higher after 5 years.
For the same reason in almost all the companies the zero depreciation bike insurance after 3 years is not available. So, it is advisable to purchase zero depreciation car insurance for 5 years and zero depreciation bike insurance for 3 years.