Till how many years of vehicle age should Nil Dip/ Zero Dep/ Bumper to Bumper be taken?
Nil depreciation or Zero Depreciation or Bumper to Bumper is an add-on available in the Own damage section of comprehensive section of Car insurance. Nil depreciation cover offers protection for your car against factoring the depreciation at the time of claim settlement. Car being a depreciating asset loses its value by each passing day due to the wear and tear as a result of usage.
Concept of Depreciation in Car Insurance:
Depreciation is the reduction in the value of the car over a period of time due to wear and tear. The concept of depreciation is pretty much same in car insurance as is in any other asset. The rate of depreciation in car insurance is fixed by the IRDA and is same across the industry.
|Age of the vehicle
||Percentage of Depreciation(taken for calculating IDV)
|6 months and below
|6 months to 1 year
|1 year to 2 years
|2 years to 3 years
|3 years to 4 years
|4 years to 5 years
|Above 5 years
||Mutually agreed b/w Insurer & Insured
The value of the car taken for the purpose of insurance premium calculation is known as the Insured Declared Value (IDV). The IDV for the 1st year is taken as 95% of the ex-showroom price. This is due to the fact that the value of the asset is depreciated over the period of time.
The Insured Declared Value for the cars aged above 5 years is arrived by mutual agreement between the insurer and the insured.
For example if the ex-showroom price of a new car with age less than 6 months is Rs.10 Lacs, the depreciation rate is only 5% which means that the IDV would be Rs.9.5Lac. After a year the IDV drops to Rs.8.5Lac and so on. Most of the times, market value of the car depends on the IDV of the car at the time of selling the car. But in some cases if the car is well maintained, the re-sale value of the car could be much higher than the IDV.
How to calculate IDV of car? IDV is reduced 10% each year by taking the depreciation factor into consideration and the premium is calculated based on the IDV for that particular year. For 6 months and below 5% IDV is depreciated and for age of the car more than 6 months and less than 1year 15% IDV is depreciated.
Normally insurance companies offer Nil Depreciation or Zero Dep or Bumper to bumper cover for 5-7 years depending on the make and model of the car. It varies for each company and is to be decided by the customer if there is a need for the nil dip cover.
Point to be noted here is that the add-on premiums for Zero dip cover increases for each passing year. For example if the Zero dip premium for the first year is Rs.1k then for the next renewal it would be increased by at least 5-10%. This increase is due to the increase in depreciation with each passing year and the same would be reflected at the time of claim.
Zero Dep can be taken for a maximum of 5 years vehicle age and in some cases up to 7 years. Customer should understand the need for Zero dip cover before selecting the add-on as the premium for Zero dip increases each year.
For an insurance claim to be meaningful, it is better to have a Zero dip cover with the comprehensive section of the car insurance.
Without a zero dip, almost 30-50% of the claim amount has to be borne by the customer.
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