Are Zero-Deprecation Insurance Policies Worth it?
Imagine you buy a standard vehicle insurance policy. How much can you get when you make a claim? A standard car insurance policy includes a deduction for depreciation before the insurance company pays you the claim money. For instance, let us assume you incur an expense of Rs 2 lakhs towards repairs of your car. Now, after receiving the claim application, the insurance company will first reduce depreciation. Assuming the depreciation is 30%; you will only get Rs 1.4 lakhs. This means that you need to shell out Rs 60,000 from your own pocket. However, if you have opted for zero-depreciation, you could have saved that amount.
Understanding the Concept
When cars succumb to the depreciation factor in a motor insurance policy, the claim settlements get affected. Many assume that a comprehensive plan will eliminate the incidence of additional expenses for the policy holder. However, the formula the insurers use to ascertain the claim amount payable includes depreciation. In effect, you could end up having to pay a hefty sum towards that. Rather than concentrating on what a comprehensive plan lacks, it is better to concentrate on what a zero depreciation car insurance offers.
What is Zero Depreciation Cover?
This type of policy offers coverage after eliminating the factor of depreciation. So, for instance, when you meet with an accident and file a claim to meet repair expenses; your insurer might meet the entire cost of repairs. So, unlike a standard comprehensive cover, zero depreciation plans offers full settlement; where depreciation will not make a dent in the settlement amount. Here, the current value of your car does not come into the picture at all.
Undeniably, zero percent covers have the upper hand when compared to standard vehicle insurance plans. However, this will definitely cost more in terms of premium. You might have to shell out approximately 20% more in premiums than for other policies. Meaning, you are already paying a higher premium to ensure that your future claim amounts are not hindered. Some might look at it as the same end result. So, a standard policy might have lower premiums but also offer lower claim settlement amounts. On the other hand, zero-depreciation plans have higher premiums and higher settlement amounts.
However, you will never know how much extra you might have to shell out of your own pocket in a standard plan. So, to answer the primary question, zero depreciation might have a higher annual rate, but it offers greater peace of mind, since you know that you won’t have to incur huge expenses if the unfortunate does occur.