Updated on 3 Nov 2025
Depreciation refers to the decrease in your vehicle’s value over time due to damage, overuse, etc. Understanding how much a car depreciates per year is essential for car owners because it affects important aspects such as resale value and car insurance policy coverage. After a certain period, it's also crucial to consider depreciation when calculating the cost of owning a vehicle.
In this blog, you will understand how much your car depreciates per year and learn about the factors that affect car depreciation.
Car depreciation per year
The moment you start driving your brand-new car on the road, it goes from being new to being used, which leads to a decrease in its market value. Generally, this depreciation process begins right after you buy the car and continues every year. On average, the original market value of a car tends to drop by up to 20% in the initial year alone. This value decreases to about 40% during the following five years.
Several factors influence how much a car depreciates per year, including the vehicle’s make, model, mileage, age and overall condition.
While the biggest drop in value occurs in the first year, subsequent years see a slower depreciation rate.
Average car depreciation rate per year
The average car depreciation rate per year depends on factors like brand, condition, mileage, fuel type and market demand.
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Age of the car
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Depreciation value
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Less than six months
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0-5%
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6m-1 year
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15%
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1-2 years
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20%
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2-3 years
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30%
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3-4 years
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40%
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4-5 years
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50%
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IRDAI-approved depreciation for insurance claims in India
IRDAI-approved depreciation means the rate of reduction in a vehicle’s value over time, as specified by the Insurance Regulatory and Development Authority of India. Based on this rate, insurers determine the amount you’ll be reimbursed for repairs or part replacements in case of damage.
For example, if you have bought your car for ₹10 lakh in 2022, after 3 years, the depreciation value of the car will be roughly ₹5,00,000. You will face a loss of nearly 5 lakh.
Depreciation value = Initial cost - Current value (Depreciation percent/year)
What factors affect car depreciation?
Many factors affect car depreciation, like its age, make and model, mileage, the year of purchase, fuel type, working condition of the parts and market demand of the particular brand’s vehicles.
How to reduce car depreciation?
Stopping the car’s depreciation completely is not possible; however, if you follow a few tips, you can reduce the loss of value. These include maintaining your car regularly, driving single-handedly, parking in a safe place, keeping your service records clean and using zero-depreciation insurance cover.
Use of zero depreciation add-on in insurance
Zero depreciation is an add-on available with a standalone own-damage and comprehensive car insurance policy. You can use this rider to recover the amount spent on the repair of the car from your insurer without a deduction for depreciation of the components of the vehicle.
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Feature
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Standard policy
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Zero depreciation policy
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Depreciation deduction
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Yes
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No
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Pocket expense
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Higher
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Lower
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Eligible car age
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Any
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Less than 5 years
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Claim limit
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No limit
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Only 2 claims
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Premium cost
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Lower
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Higher due to the add-on
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Conclusion
The important factor you must consider before buying, selling or maintaining a car is its depreciation. This can help you make better financial decisions, especially while selecting insurance coverage. If you want help with choosing the best comprehensive or third-party car insurance for your vehicle, fill out the form on this page. We will provide you with expert, tailored advice according to your needs.
FAQ
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What is the percentage of depreciation every year?
Usually, the depreciation value is 15% to 20% of the actual value of the car.
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Does third-party car insurance cover depreciation?
No, the depreciation is not covered by the third-party car insurance.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It may contain outdated data and information regarding the topic featured in the article. It is advised to verify the currency and relevance of the data and information before taking any major steps. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.