Buying a zero depreciation Car Insurance Policy is a good idea. But it is costly compared to other policies.

So people who can afford a zero depreciation car cover, can buy it. 

For people who buy car Insurance policy just because it is mandatory, can avoid zero depreciation cover. Why?

Because these policies are expensive. 

How expensive is zero depreciation Car Insurance policy?

It will be approximately 25-30% more expensive than a typical comprehensive policy.

The cost difference has been presented in the below infographic:

So from cost point of view, we can see that, zero depreciation car insurance policy is expensive.

But what is the difference between the following 3 types of insurance covers:

1. Third Party Cover (Compulsory).
2. Comprehensive Cover.
3. Zero Depreciation Cover. 

There are good articles available on internet which will elaborately explain the difference. So I will not go into more details.

I will try to explain this in layman’s language. 

The “extent of cover” provided by each policy differentiates the three with each other. 

Extent of Cover…

There are three parties involved in a car insurance policy.

1. Insurance Provider. 
2. Policy Holder. 
3. Third Party.

Insurance providers are companies like Oriental Insurance, National Insurance, Tata AIG, Bajaj Allianz, Royal Sundaram etc.

Policy holder is one who has bought the car insurance policy like you and me. 

Third Party is one with whom we have met with an accident, like someone else car, truck, bike etc. 

How the insurance provider covers our damage, and the third party’s damage, establishes the difference between these policies.

Lets understand this visually:

What does the above infographic explain?

Third party cover:

If the policy holder (you) has this type of car insurance, then the damages done to only third-party’s car (if applicable) will be covered. 

But why your policy should cover the damages done on the third party’s vehicle?

Yes, this will happen when the policy holder (say you), was the cause of the accident, and the third-party so claims it. 

The damages incurred on the policyholders car are not covered in this policy. 

The policyholder must pay for the damages to his/her car from own pocket. 

Comprehensive cover:

If the policy holder (you) has this car insurance, then the damage done on self’s and third party’s cars (if applicable) will be covered. 

But here the depreciation factor comes into play.

Hence 100% cost of damage (full settlement coverage) is not payable by the insurance company. 

Lets try to understand this more clearly. 

Suppose you have a car purchased in year 2016. In year 2018, your car met with a road accident.

In this accident, the car door got damaged. It needs replacement. 

The cost of new door is say Rs.10,000. But the insurance covers only the depreciated value of the door.

In 2 years, suppose the depreciated value of door is Rs.8,000. 

In this case your insurance company will pay only Rs.8,000, and balance Rs.2,000 shall be paid from your pocket (your out-of pocket expense).

Moreover, in comprehensive insurance plans, damages to plastics, glass, rubber, fibre items attract only 50% cover.

Zero Depreciation cover:

Theoretically, zero depreciation insurance covers everything. 

No cost of damage to be born by the policy holder upon insurance claim.

• There is no depreciation applicable. 
• Even damages to plastics, glass etc are 100% covered. 

Isn’t it perfect? 

Zero depreciation insurance policy is actually a no-worry, cover-all policy.

But if it is so, why everyone is not buying it?

Limitations of zero depreciation car insurance policy?

One of the limitation we have already discussed. Cost. 

The premium payable for zero depreciation cover is usually 25-30% higher than a normal comprehensive cover. 

But this is not all. There are other minor limitations of zero depreciation cover. 

First, Most of the insurance companies offers zero depreciation cover only for cars less than 4 years old. 

So if one has a car which is say more than 4 years old, there is no other alternative but to buy either a comprehensive or a third-party cover. 

Second, As premium payable on zero depreciation plans are higher, sometimes it is not worth paying it. How?

Suppose you are a very good car driver, and you prefer to drive your Maruti Alto most of the time. 

Which car insurance policy is better suited here? Comprehensive. Why?

• Firstly, because the occurrence of accident is less. 
• Secondly, the cost of parts of Alto is anyways inexpensive. 

Hence if a person is driving a low-cost car, zero depreciation cover may not be necessary. 

But if one is driving a premium car, zero depreciation insurance will be a value for money. Why? 

Because spare parts of these cars are very expensive. 

What I will do personally? If I am driving a car of price Rs.20 Lakhs plus, I will opt for a zero depreciation plan. 

Third, As zero depreciation plan covers 100% cost of damage, it may lead to reckless driving. 

It may also lead to frequent insurance claims by the policy holder for even minor repairs. 

Hence to prevent any such claims, insurance companies has kept a limit on number of claims that can be filed in a year, in case of zero depreciation policies. 

In case of normal comprehensive policies, one can file n number of claims in a year. 

Suggested Reading: When to avoid claiming car insurance cover.

Forth, Zero depreciation insurance cover is provided only for private cars.

Taxis, commercial vehicles like trucks & busses are not provided with zero depreciation covers.

Conclusion…

Lets try to see zero depreciation car insurance policy from a buyers perspective only. 

Suppose you have bought a new car Hyundai Verna 2018 model. 

Along with this car, you have bought a standard comprehensive car insurance policy. 

If everything goes normally, probably you will file for an insurance claim once every 1.5 years. 

For this type of car, average cost of damage due to minor road mishaps can range from Rs.30,000 to Rs.40,000. 

The cost bifurcation between you and insurance company will be generally 25% & 75% respectively.

Hence the cost on your pocket will be between Rs.7,500 to Rs.10,000. 

How these values sound to you? If it is high, better go for a zero depreciation cover. 

Anyways, the premium of such a plan will be high, but will give you a piece of mind. How? 

At the back of the mind you are sure that, any type of damages are fully covered by your insurance plan. 

Our mind handles known costs (Premium) better than unplanned costs (like forced expenses post accidents). 

There is one more side to look at…

Till the repair costs are only due to minor accidents, zero depreciation insurance plans looks compromiseable. 

But in case of major accidents, the cost of car repair can go as high as Rs.1.5 lakhs. 

In this case if the cost sharing comes out as 35%-65% between you and insurance company, your cost will be a whopping Rs.52,500. 

In such cases, zero depreciation policies comes as a huge saviour. 

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