Zero depreciation cover

What is zero depreciation cover?

Zero depreciation cover is an optional add-on to the own damage section of a motor policy. Without it, an insurer deducts depreciation on every part it replaces in a partial loss claim, so the customer pays part of the bill. With it, those deductions are waived and the insurer pays the cost of the replaced parts in full, subject to the add-on's conditions. Insurers market it under names such as "nil depreciation", "depreciation waiver" or "bumper to bumper".

It does not remove the compulsory deductible, does not cover wear and tear or mechanical breakdown, and does not change what is paid on a total loss, which is governed by the IDV.

How zero depreciation cover works

The standard own damage wording deducts depreciation on parts replaced in a partial loss:

Zero depreciation removes these deductions. The add-on is filed by each insurer with IRDAI, so terms vary. Common conditions are:

• Claim count limits. Many wordings let the customer choose a plan that covers every partial loss claim in the year, or only one or two. A lower claim limit means a lower add-on premium.
• Vehicle age limits. Insurers usually offer the cover only for vehicles up to a set age, and some only at renewal without a break.
• Linked to an admissible own damage claim. If the own damage claim itself is not payable, the add-on pays nothing.
• Exclusions stay. Tyres damaged without the vehicle being damaged, consumables (unless a separate consumables add-on is bought), mechanical failure and wear and tear remain outside cover.

Example

A car that is three and a half years old has a front-end accident. The workshop bill has ₹20,000 of plastic parts, ₹30,000 of metal parts and ₹10,000 of labour. Without the add-on, the insurer deducts 50% on plastic (₹10,000) and 25% on metal (₹7,500), so the customer bears ₹17,500 plus the compulsory deductible. With zero depreciation, the customer bears only the deductible and anything excluded.

What zero depreciation cover means for distribution

• It is the add-on customers notice most. Depreciation deductions are the most common shock at a first motor claim. Advisers who explain the depreciation table at the sale, with a rough example for the customer's car, see fewer disputes and better renewal retention.
• Match the plan to the customer. A new car driven daily in a city benefits from an unlimited claims plan. An older car used occasionally may be better served by a one-claim plan or none. Selling the most expensive plan to everyone invites mis-selling complaints.
• Dealer and MISP practice. New car policies sold through dealerships (MISPs) usually include zero depreciation. When the customer renews elsewhere, a quote without it can look much cheaper. A good adviser points out the missing cover rather than letting the customer discover it at claim time.
• Renewal age cut-off. As a vehicle approaches the insurer's age limit for the add-on, the customer should be told in advance, because a break in renewal or a move to another insurer can mean losing it.
• Claim frequency affects pricing. Insurers price this add-on on claims experience. Distributors with high small-claim frequency in their book may see the add-on premium rise or the terms tighten at their partner insurers.