From the day one starts earning, owning a car remains one of the most cherished dreams for most millennials. After all, for most of us, a car remains the second most prized asset after our home. However, unlike a real estate property, which is an appreciating asset, cars are a depreciating asset to own. Over time, as depreciation kicks-in, the value of the car, including that of its various parts, keeps falling.
The most uncomfortable feeling is when even after being insured, the insurance company at the time of a claim pays anything less than the insured amount. But, there’s a way-out to ensure you get the full credit on your claim without any deductions. Before we see how, let us briefly look at how the value of a car is determined and how depreciation works.
Value depreciation and Insured Declared Value
The value of a car at any point of time is roughly the market value and is referred to as Insured Declared Value (IDV). The calculation of IDV is based on the manufacturer’s car price and depreciation depending on the age of the vehicle. Once the IDV is arrived at, after factoring in the depreciation rates, it becomes the maximum sum insured or the coverage amount that the insurer agrees to pay at the time of any claim.
Based on the IDV, you pay the premium for your car insurance policy. Here’s how the depreciation rates are applied to adjust the IDV at the time of claim. From 5 per cent, if the car is less than 6-month old, to 50 per cent of depreciation on the car above 5 years old, the value of the car is subject to depreciation rates based on the age of the car. But, for various car parts there are fixed depreciation rates irrespective of the age of the car.
As a result, at the time of any claim, as a car owner and policyholder you end up receiving a lower amount from the insurer because of certain deductions in the form of depreciation.
So, what’s the best way forward? To ensure that you get the full amount of IDV, you can ask the insurer to include a Zero-Depreciation Add-on Cover to your base Car Insurance cover. An Add-on Cover such as Zero-Depreciation Add-on Cover is an optional feature that can be included in your policy at a nominal additional cost for extra benefits.
What is Zero-Depreciation Add-on Cover?
Zero-Depreciation Add-on Cover ensures there is a comprehensive coverage in your car insurance policy without any deductions in the name of depreciation. Effectively, you get claims with nil depreciation and also the total cost of replacement of card parts in the case of accidents or damage. As a result, you end up saving a huge amount as the insurer bears the entire cost of replaced parts without factoring in the depreciation. To get the maximum benefit out of the Zero-Depreciation Add-on Cover, make sure you choose to opt for it right at the time of buying your new car or during the next car insurance renewal. This Add-on cannot be availed if your car is older than 5 years.
Benefits of Zero-Depreciation Add-on Cover
Get Full Value: At the time of a claim, the insurer pays the total cost of replacement for the damaged parts without any deductions, and even the value of the car as reflected in its IDV.
No Out-of-Pocket Expense: No need to dip into your wallet to meet any portion of the garage bill. However, any cost towards normal wear, tear and mechanical breakdowns will have to borne by the insured.
Claim Experience: You end up experiencing a hassle-free deal, leaving no ground for negotiations with the insurer or the garage owner. Once opted, depreciation will not impact the claim settlement and full compensation is provided to the insured.
Cost of Parts and Repair has full coverage: Even if you have an expensive car with costly parts, the Zero-Depreciation Add-on Cover ensures the coverage takes care of the total expenditure. Almost all the vital parts of the car are covered without taking into account the depreciation factor.
As a new buyer of a car, you should definitely consider opting for a Zero-Depreciation Add-on Cover because of its inherent value. For those who are new to driving and are buying a new car, it certainly makes sense to opt for the Zero-Depreciation Add-on Cover of Bajaj Allianz General Insurance. A small extra amount can keep the worries of massive repair bills away when you are behind the steering wheel on the long road ahead.
The article is sponsored by Bajaj Allianz General Insurance.