Value of most machines goes down over time, vehicles are no exception. In the case of a two-wheeler, the depreciation starts within days of buying a new one. And it is not only the overall value of a bike that depreciates, but several individual parts also depreciate. That’s why the Insurance Regulatory and Development Authority of India (IRDAI) has laid down depreciation guidelines which are followed by every insurer.
Some think buying a comprehensive insurance policy is a solution to tackle value depreciation. Not really, though a comprehensive plan is a great help as it gives cover against accidental damage, theft and any third-party liability. When you file a claim under your standard comprehensive insurance policy, the cost of repairs and replacement of various parts is not fully reimbursed by the insurer because of depreciation of some parts. All parts made of rubber, plastic, and metal are depreciable, and the best way to get cover against depreciation is to get the Zero Depreciation add-on at the time of buying a comprehensive insurance policy. But before we discuss features of the add-on, let see how depreciation is calculated.
IRDAI has laid down clear-cut guidelines for insurers to calculate depreciation value of each part of the bike. The depreciation rates of parts made of nylon, plastic, rubber, metal etc. are given in the following table:
|Bike Parts||Depreciation Rate|
|Rubber, Nylon, Plastic Parts||50%|
|Tubes and Tyres||50%|
|Metal Parts||As per the depreciation on IDV|
IRDAI has also laid down guidelines for insurers to calculate depreciation of a vehicle’s overall value. The Insured Declared Value (IDV) - the amount for which a vehicle is insured for - depends upon age of the vehicle - the older a vehicle gets the greater depreciation it attracts. The following table contains depreciation rates as per age of a vehicle:
|Age of the vehicle||% Depreciation|
|Not exceeding 6 months||5%|
|Exceeding 6 months but not exceeding 1year||15%|
|Exceeding 1year but not exceeding 2years||20%|
|Exceeding 2years but not exceeding 3years||30%|
|Exceeding 3years but not exceeding 4years||40%|
|Exceeding 4years but not exceeding 5years||50%|
|Exceeding 5 years||Depreciation on IDV increases at a rate of 2.5% every year.|
Importance of Zero-Depreciation add-on
All insurers provide Zero-Depreciation add-on which you can go for at the time of buying a motor insurance policy. What it does is that it binds the insurer to pay the full amount for repair or replacement of parts if your vehicle suffers damage. The add-on comes at a price, though not much. For example, the premium for a standard insurance policy for a new Bajaj Pulsar 180 is INR 1,578 and with zero-depreciation add-on, it is INR 1,906.
Zero Depreciation add-on comes very handy in two scenarios: One, if your vehicle gets damaged in an accident, the insurer will pay for the repair or replacement of the damaged parts. Second, when the accident leads to total loss of the vehicle. This is because in such a situation insurers apply depreciation rules and if you have Zero dep cover then you do not have to pay any money from your pocket, the insurer will take care of all the expenses.
In case of theft, however, your insurer will pay you the IDV of your vehicle and the policy will lapse. But IDV is something that your insurance company decides and not you.
One more thing: Under zero-depreciation cover, most insurers allow only 2 claims in a policy year, and after that, your policy will be treated as a standard policy without depreciation benefits.
Exclusions of Zero-Depreciation cover
Like in any other policy there are limitations and exclusions, Zero-Depreciation add-on also comes with some exclusions that are listed below:
(The writer is Co-Founder and Director, Policybazaar.com)
- The number of claims in a policy year differs from insurer to insurer. Some allow only 1 in a year, some 2, some even 3 claims. Therefore, do read policy documents carefully before making the payment.
- Zero Dep is given to the vehicles of age 2 years or below, generally this add-on cannot be availed for a vehicle older than 3 years. However, only few insurer offer zero-dep upto 5 years.
- Damage pertaining to casual wear and tear or negligence is not covered and repair needs to be taken by you only.
- Claim will not be accepted if the damage caused is due to a non-listed peril in Own Damage
- Benefits of zero depreciation in case of theft cannot be availed, pay-out will be on IDV.