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Is a zero depreciation add-on worth it?

Is a zero depreciation add-on worth it?

Basic car insurance won’t pay for everything. Your windshield isn’t covered and all other parts are paid for only after factoring in depreciation. The solution is the zero depreciation add-on.

Comprehensive car insurance won’t pay for all the damage to your car. For more vulnerable parts – the car’s windshield, for example – you’ll receive nothing in the event of an accident. But even other parts are subject to depreciation in the event of a claim (see table below). The only way to fully insure yourself from any costs that may arise from an accident is a zero-depreciation add-on.

Why you should consider it
Insurers won’t pay full price to replace old car parts. Depreciation is factored in the moment you drive your car out of the showroom. With all insurers, this is the rate at which it is calculated.

Vehicle age Depreciation deduction
1 year 10%
2 years 20%
3 years 30%
4 years 40%
5 years 50%

This is the rate that applies to all but two parts of your car – any glass and the tyres. Insurers will pay nothing for any glass that breaks in an accident, 30% of the value of fibre glass, and 50% of the cost of tyres and tubes that need replacing.

What it includes?
With this add-on, depreciation does not apply, and your glasses and windshield are fully covered (tyres and tubes aren’t). It, however, will increase your premium by around 30%. For some insurance companies, this cover is only extended for the first two years from your car’s registration to a maximum of five years. After that, the car is not eligible for this cover and depreciation deduction will always be factored in while settling the claim.

Terms and conditions
Some insurance companies, like Reliance General, have a condition laid out that your car’s repairs can only take place at an authorised dealer or repairer approved by the company. Another condition is that you cannot make more than two claims during a single policy period. Wear and tear of your vehicle parts and damage to uninsured items like fuel kits are not included in the cover. Mechanical breakdowns are also excluded from zero depreciation claims.

Is it worth it?
If you have a high-end car, the parts for which may be costly, it is recommended. For example, a zero-depreciation cover on the Toyota Fortuner would cost you Rs16,160 per year (Reliance General), whereas the windshield itself, if damaged in an accident, would cost Rs30,000 to replace. Here are our calculations if your front windshield and headlights were damaged in an accident:

Car Damage cost Zero dep premium
Toyota Fortuner Rs41,000 Rs16,160
Chevrolet Cruze Rs24,900 Rs8,945
Hyundai Verna Rs9,817 Rs6,499

As from our table above, the premiums payable per year are justified in case of accidents. For low-end cars, however, it would be more advisable to invest in an emergency fund instead of opting for the zero depreciation cover.

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