Car Depreciation: Imagine, you bought your favourite car with a lot of hard work and also took insurance for it. But whenever the time of accident or repair comes, why is the claim amount less than your expectation? The biggest reason for this is depreciation.
Depreciation is one such factor in insurance that directly affects your claim. This is why people nowadays want to understand this aspect well while choosing car insurance.
If you also want to know what is depreciation and how it affects your insurance claim, then this blog is for you.
Also, we will look at how modern insurance options, like ACKO policy , try to provide better convenience to car owners in this matter.
Depreciation in car insurance means the value of your car and its parts decreasing over time. As the car gets older, its value decreases. When you apply for a claim, the insurance company pays only according to the decreasing value of the car’s parts, not the full price. This is called depreciation.
If your car is less than 5 years old, a better way to avoid this is to take ACKO car insurance ‘s ‘Zero Depreciation Cover’ add-on. In which the premium is slightly higher, but at the time of claim you do not have to bear the depreciation of the car parts and you get the full amount.
It is important to understand the depreciation rates in car insurance so that you get the correct amount at the time of claim. These rates are determined according to the age of the car and the insured declared value (IDV) and are set by the Insurance Regulatory Authority of India (IRDAI).
Up to 6 months 5%
6 months to 1 year 15%
1 year to 2 years 20%
2 years to 3 years 30%
3 years to 4 years 40%
4 years to 5 years 50%
Remember, different parts of the car like rubber, plastic, tyres or battery can depreciate up to 50%, while fibreglass can depreciate up to 30% and glass parts like mirrors have no depreciation. This means that you do not get full compensation for the cost of these parts in a claim.
Depreciation in car insurance has a direct impact on your claim amount. Let’s understand this with a simple example:
Suppose, replacing a part (like steering or light) of your 3 year old car costs Rs.10,000.
As per insurance rules, a 3 year old car will incur a depreciation of 30%.
This means, the insurance company will assume that the current value of the part is only ₹7,000 (because 30% of ₹10,000 i.e. ₹3,000 was deducted).
Further, if your policy has a ‘computational deductible’ (like ₹1000), that will also be deducted from this ₹7,000.
So, in the end you will get in claim: ₹7,000 – ₹1000 = ₹6,000
That is, you spent ₹10,000, but due to depreciation you got back only ₹6,000.
Also Read: 5 Budget-Friendly Ways to Make Your Home Beautiful
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