Every car undergoes wear and tear as it ages. As a result, the value of its parts decreases over time. This reduction in a car’s value is known as depreciation. When filing a car insurance claim, the insurer deducts the vehicle depreciation from the approved claim amount. Consequently, you end up paying a certain part of the repair bill out of your pocket. This is where a depreciation waiver can be beneficial. Let’s take a closer look at what a depreciation waiver means in a car insurance policy and learn its benefits.
Depreciation Waiver in Car Insurance: What Does It Mean?
A depreciation waiver, commonly known as zero depreciation cover, is an add-on available with comprehensive or own damage car insurance policies. When you have the zero dep cover, the insurer does not subtract the depreciation on your car or its parts being repaired or replaced at the time of claim settlement. In short:
- Without Depreciation Waiver – You pay a portion of the repair cost from your pocket.
- With Depreciation Waiver – The insurance company pays the full repair cost without deducting the depreciation.
Thus, a depreciation waiver add on in car insurance ensures you get a higher claim amount and spend less from your own pocket.
How Does Zero Depreciation Cover Work?
To understand how does the zero depreciation car insurance work, consider this example:
Usually, when you make a claim for the replacement of a part, you do not receive its full cost but only the depreciated value, depending on the age of your car. The older a vehicle is, the lower its value.
However, if you have the zero depreciation cover in your vehicle insurance, your insurer will pay the complete value of the parts without deducting any amount towards their depreciation. This means you do not have to pay out of your pocket for the replacement of your car parts. Now, let’s take a look at the vehicle depreciation rates in India.
IRDAI-Approved Car Depreciation Rates in India
The Insurance Regulatory and Development Authority of India (IRDAI) sets the vehicle depreciation rates in India. The table below highlights the fixed depreciation rate slabs set by IRDAI:
| Vehicle Age | Depreciation Rate |
| Less than 6 months | 5% |
| 6 months – 1 year | 15% |
| 1 – 2 years | 20% |
| 2 – 3 years | 30% |
| 3 – 4 years | 40% |
| 4 – 5 years | 50% |
| More than 5 years | Mutually decided between the insurer & car owner |
Depreciation in car insurance is not only applicable to the vehicle but also its individual components. Let’s understand how depreciation affects the market value of your car parts:
| Car Components | Depreciation Rate |
| All nylon/plastic/rubber parts, air bags, batteries, tyres & tubes, & paintwork | 50% |
| Fibreglass parts | 30% |
| Glass parts | Nil |
Also Read: Vehicle Depreciation Rates and Their Impact on Car Insurance Premiums
Who Should Consider Zero Depreciation Add-on?
Adding the zero depreciation cover to your car insurance is a great choice for:
- Newly purchased cars
- High-end or premium cars
- Vehicle owners who drive frequently
- Drivers who want minimum repair expenses
- Those residing in accident-prone areas or cities with dense traffic
Major Benefits of Depreciation Waiver Add-on
Take a look at some of the key benefits of the zero depreciation add on in car insurance:
- Higher Claim Payout: When you have the zero dep cover, the insurer settles the claim without deducting depreciation, which means you receive a larger payout.
- Lower Repair Costs: Garage expenses reduce significantly, as you don’t have to pay for the depreciated value of replaced parts.
- Financial Security: Spare parts and labour costs could be significantly high. The depreciation waiver add-on with your comprehensive car insurance will protect you from such unexpected & hefty repair expenses.
- Ideal for New & Costly Vehicles: Since the value of new cars depreciates faster in the first few years, this cover helps protect your investment.
Important Points to Know About Zero Depreciation Insurance
While adding the zero depreciation cover in your car insurance, keep these things in mind:
- The benefits of zero dep insurance can be availed only with an own damage or comprehensive car insurance, and not third party policies.
- Mostly, car insurance companies offer zero depreciation add on for cars up to 5 years old. Though, some insurers offer zero dep insurance for cars up to 10 years old.
- Some insurers allow limited zero-depreciation claims per policy year.
- Depreciation waiver does not cover engine or mechanical breakdowns unless you opt for additional add-ons.
- The zero depreciation premium cost is slightly higher than the standard car insurance. However, the savings during claims are significant.
Final Thoughts
Adding a depreciation waiver add-on cover to your car insurance is a practical way to ensure you get maximum claim payout and avoid unexpectedly high repair expenses. This add on is especially useful during the early years of your car’s life, when depreciation is steep. With zero dep insurance, you get peace of mind, enhanced protection, and reduced financial stress in case of accidental damage.
