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Zero Depreciation Cover - Should you buy one for your car?

Many car owners have to shell out a significant percentage of the repair cost after an accident, despite having a comprehensive insurance policy. This is so because the standard policy pays the claim after applying "depreciation".

Depreciation is nothing but reduction in the value of a product with use. Therefore, if there is a damage to any part of the car, the insurer does not reimburse the actual cost at the time of replacement, but only its depreciated value.

Some parts depreciate faster than the others. Accordingly, as a car comprises many different parts made from different materials, the insurer applies various depreciation rates.

As such, 
- for rubber/plastic parts, tyres/tubes, battery etc. (which have high wear and tear), the depreciation rate applied is 50%
- fiber glass parts attract 30% depreciation
- all others, especially metallic parts, are depreciated at 0-50% depending on the age of the vehicle (from 0% upto 6 months and going upto 50% after 10 years) 
- painting attracts depreciation of 50% of the material cost

Hence, if suppose the tyre has to be replaced after an accident, you will be reimbursed only 50% of the tyre cost. 

This is where the add-on cover to a standard policy, called 'Zero Depreciation' comes to your rescue. With this you become eligible to receive the actual replacement cost i.e. no deduction is applied on account of depreciation. 

It, of course, comes with an additional cost...normally around 20-30% over and above the standard policy premium.

Further, there a few caveats...
...this cover is mainly available for new cars upto 3-5 years of age
...normal wear and tear is not covered
...normal mechanical breakdown too is not covered

The cost of parts in mid/big cars would normally be high. Moreover, buyers of such cars usually have big budgets. So, it would maybe make sense for them to go for the Zero Depreciation cover. 

Small car buyers could probably save this extra premium. Moreover, as mentioned in my earlier post '10 Ways to Save Money on your Car Insurance Premium', it is not advisable to claim for minor damages. As far as feasible, one should not lose the benefit of No-Claim Bonus, which goes up to 50% and is available year after year.         

Ultimately, I guess, you have a make a choice depending on your driving pattern and budget.

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