Car is technically a depreciating asset and so from the financial health angle it is always advised that neither EMI nor Insurance premium of your car should form a large part of your annual income. Now from the realm of car insurance the depreciating factor of your car can affect situation of claim settlements. You might think that you have a comprehensive policy for your car but when you file a claim your insurance provider does a complex calculation to understand the current value of car by factoring in depreciation and you end up paying a part of the expense arising from car damage out of your own pocket.
So the question that comes to your mind now why the insurance company calls the plan as a comprehensive plan and you feel cheated. You also would argue that the term is misleading but that is not the case. What you pay as premium to your insurance provider is for the risk they take on your behalf and which in case of a depreciating asset like car the risk taken for per unit of money you paid as premium is quite high so while settling claims the depreciation is always factored in. But if you want to stay protected from the depreciation risk also you can opt for the Zero depreciation add-on with your car policy, popularly known as zero-dep plans.
Let understand what zero depreciation cover means:
There is obvious difference between a plan having zero depreciation and a plain vanilla plan. In case of a plain vanilla plan when you make a claim the insurer would first evaluate the current value of car to understand the financial value of the loss for which you claimed and while calculating the current value the depreciation factor is subtracted from the IDV of the car but in case of a policy with zero dep add on the IDV is kept intact because you have already paid in advance for the expected depreciation losses.
But this doesn’t mean that you can drive carelessly and you will still paid for the entire car insurance claim if you have applied for a zero depreciation add-on. You should always keep in mind that as per the Motor Vehicle Act of the country claims can be only given only in case of four specific scenarios:
Please do keep in mind the any car insurance policy whether having a zero dep add-on or not would cover happening due legal accidents. The insurance regulator IRDA also is very stringent about what has to be covered and what not. If you have the add on in place it doesn’t means that you can make any numbers of claims in a year. Looking the same in parlance with your health insurance plan where there is a option where you have a co-pay clause.
Now the final question, is it worth paying extra for Zero depreciation add-on
Generally speaking you always end up paying close to 20% more if you have applied for a zero dep add-on cover. The zero depreciation cover applies for the initial three years of the car purchase only. If the car is older than that the benefits are of no relevance and it is also advised to not to shell out an extra penny for it.
Though zero depreciation is now a fad among new car owners but it is always advised to make a prudent selection. You can try doing a online comparison of your car policy among various insurers if you are really looking for one.
Looking at the overall advantages of the zero depreciation cover, first calculate online car insurance premium, it always a must buy thing unless otherwise it pinches you personal financial plan