What happens to zero depreciation car insurance after 5 years?

Have you ever thought about zero depreciation car insurance and what happens to your car after 5 years? In this blog, we’ll break down the modalities of a car insurance policy, including depreciation and how they relate to one another.

What is a zero depreciation cover and what are its advantages?

Consider yourself the proud owner of a beautiful new car, which, unfortunately, gets into a tiny accident. If you have regular car insurance, your insurer will add depreciation to the repair cost. Therefore, you have to pay the remaining amount based on how much your car has already lost in value. However, with zero depreciation insurance, you may wonder whether the accident was a godsend, as the insurer pays the full cost of the repair, without deducting the depreciation costs for the replaced parts.

The benefits of this cover include:

• Full claim settlement: 
• No depreciation deduction: You receive the full claim amount for the repair or replacement of parts without factoring in vehicle-part depreciation.
• Better financial protection:
• Lower out-of-pocket expenses: Reduces your out-of-pocket expenses significantly as the cost of depreciation is borne by the insurer.
• Comprehensive coverage: Ensures more extensive financial protection compared to normal insurance policies.
• Peace of mind:
• Stress-free claims: Provides you peace of mind, as you know you will be reimbursed the full cost of repairs and replacements.
• Enhanced security: Reduces the financial burden and stress associated with accidents and damage.
• Ideal for new and luxury cars:
• Value preservation: Helps maintain the value of new and high-end vehicles by covering the full cost of high-value parts.
• Optimal for expensive parts: Beneficial for cars with expensive parts that would otherwise incur significant depreciation costs.
• Higher claim approval:
• Reduced disputes: With zero depreciation cover, disputes regarding the amount to be paid out during claims fizzle out, resulting in smoother and faster claim settlements.
• Inclusion of all parts:
• Comprehensive part coverage: Covers all parts of the vehicle, including plastic, fibre, and metal parts, which are usually subject to higher depreciation rates.

However, there is a catch to it all, as is with all good things in life! A zero depreciation plan costs an additional premium compared to normal car insurance.

What is the calculation of depreciation for plans with a zero-depreciation add-on?

Standard car insurance policies offer an Insured declared value (the maximum amount the insurer will pay in the event of total loss) that factors in depreciation. It will reduce the IDV value based on your car’s age, make, area, model, and even the driver’s habits. Furthermore, the older your car gets, the more depreciation the repair will incur. Depreciation increases as your car gets older.

This means that if a car is 3 years old, it may only depreciate by 30%, and in case of a write-off, it would pay back 70% of the original value. In short, buying a new vehicle can make quite a dent in your wallet. Such an amount will not allow you to buy another car if your old one becomes unretrievable following an accident.

You can refer to this table for calculating depreciation:

What happens to zero depreciation car insurance after 5 years in India?

The biggest problem with zero-depreciation car insurance is that once your car gets older than 5 years, most insurance companies will not be willing to provide you coverage. Hence, we recommend that you lower your coverage or opt for third-party insurance on an older car. The reason behind this is that as your vehicle ages, the parts naturally wear down more, making it riskier for the insurer to offer full coverage.

Some insurance companies will allow you to use zero-depreciation coverage every year until your car reaches the age of 7 years. This flexibility is considered only if your car’s condition has not worsened enough to face the full extent of the vicious 5-year depreciation, and your driving record is clean. 

In India, zero dep car insurance after five years often becomes less available and more expensive. You should be prepared for the likelihood of not being able to renew this cover. Instead, you can explore alternative add-ons to maintain comprehensive protection for your car. It's important to regularly review and compare insurance policies to ensure you have the best coverage for your car’s age and condition.

Conclusion

While zero depreciation car insurance after five years may not be your friend forever, it does provide excellent protection for your car when it's young. However, keep in mind that this is not a long-term solution. Monitor your policy renewal, and after 5 years, be ready to move it to a normal plan if you can or negotiate an extension. Be sure to double-check the terms of your plan going forward and look for other ways to ensure your older car remains well-insured.

Disclaimer: The information provided in this blog is for educational and informational purposes only. It may contain outdated data and information regarding the Insurance industry and products. 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.