Everything, including your most valuable asset, loses value over time; such is the fact of life. We all buy new things and get used to them within two days, after which they are no longer new to us. The monetary value of an item is determined by its age, condition, and usage. The more a product is used, the less economic value it has. This is basically what depreciation is.
When you buy any insurance, e.g., Bajaj Allianz car insurance, you can choose zero depreciation coverage, which then provides extensive coverage and saves loss due to depreciation.
What is depreciation in insurance?
Depreciation in insurance is the loss of a vehicle’s value over time as each component wears out. As the car’s components degrade, the value of your car also diminishes. This is true not just for your car, but for everything else, like your phone, laptop, bike, and other assets. Depreciation is the loss of value caused by decay or normal wear and tear on your vehicle.
Your car’s value is just like your phone, which depreciates rapidly. When you buy the car, it is brand new, but after a few minutes, it is used. The depreciation also affects the insured’s Declared Value (IDV) of your car.
You can use an online car insurance calculator to understand the relation between the model of the car, the IDV, and the premium. *
In insurance, how is depreciation calculated?
Depreciation is generally calculated by comparing an item’s Replacement Cost Value (RCV) to its life span. RCV denotes the current cost of repairing or replacing the item with a similar thing.
For instance, suppose your car is in an accident, and most of its parts are destroyed. You purchased the vehicle two years ago, and it was in good condition for its age before the accident. Today, a comparable car costs Rs.6 lakh (the RCV). This car has a five-year life expectancy, meaning it loses 20% of its value yearly. Your car had lost 40% of its value because it was two years old when it was destroyed in the accident. *
Your car’s depreciation is calculated in two ways:
- Your new car automatically depreciates the moment you drive it off from the showroom. At that same moment, it loses 5% of its ex-showroom value, and its worth keeps declining. This is referred to as general depreciation and typically enters the picture in theft or complete loss cases.
- In the event of a partial loss of your vehicle, depreciation is calculated on the specific parts of your vehicle that must be replaced.
Zero depreciation add-on cover: Zero depreciation cover is a very beneficial add-on cover. You can have this as an add-on cover to your comprehensive car insurance policy. This add-on cover provides extensive coverage, covering every inch of your vehicle except for engine damage, tyres, batteries, and glass. Remember, car insurance prices are adjusted as per the add-ons one chooses to add to the policy. *
Bajaj Allianz car insurance provides the option of various add-on covers, which customers may choose to add as per their requirements.
How to claim car insurance online?
The process is straightforward, and one can easily claim by using the company’s website or app to file an insurance claim.
* Standard T&C Apply
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.