Buying a motor cover? Should you go for zero-depreciation policy

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Updated: August 4, 2016 1:07:35 PM

Are you purchasing a motor insurance for the new car or renewing your existing cover? One of the suggestion that the insurance company's representative might suggest is to by a zero-depreciation policy also called zero-dep in common parlance. Do you know how a zero-depreciation policy works?

In simple terms under a zero-dep policy you will get the entire claim amount as reimbursement with no depreciation allowed on the damaged parts of the vehicle. However, the premium on this policy would be higher than a normal comprehensive policy.(Reuters)In simple terms under a zero-dep policy you will get the entire claim amount as reimbursement with no depreciation allowed on the damaged parts of the vehicle. However, the premium on this policy would be higher than a normal comprehensive policy.(Reuters)

Are you purchasing a motor insurance for the new car or renewing your existing cover? One of the suggestion that the insurance company’s representative might suggest is to by a zero-depreciation policy also called zero-dep in common parlance. Do you know how a zero-depreciation policy works?

In simple terms under a zero-dep policy you will get the entire claim amount as reimbursement with no depreciation allowed on the damaged parts of the vehicle. However, the premium on this policy would be higher than a normal comprehensive policy.

“Having a zero-dep policy means that the entire claim amount will be reimbursed by the insurer in the case of any claim as it will not factor in the cost of depreciation of your vehicle while settling your claim. Whereas, under a comprehensive insurance policy, only a part of the claim will be paid by the insurer who will consider the current market value of your vehicle while settling the claim,” Naval Goel, CEO & Founder, PolicyX.com told FeMoney.

Goel says that the premium payout for having a zero-dep cover could be substantially higher. “The premium zero-dep policies could be higher by as much as 20-25%. This, at times, deters buyers for going for such policies. However, while making a claim, zero-dep policy is more beneficial than a comprehensive policy simply because of the primary benefit that it offers i.e. full claim reimbursement,” he said.

Saroj Satapathy, CEO, Ideal Insurance Brokers favours purchase of zero-dep policy. “Considering the increasing number of vehicles on road, frequency of accidents and high cost of repair and spare parts, it is advisable to go in for a zero-dep cover for at least first 3 years of the car if not more (usually offered for 5 years),” he said.

Goel agrees. “If you are buying a motor insurance you should definitely go for a zero-dep cover for the benefits that it offers. However you should keep in mind that you can only make a limited number of claims in such a policy and it generally applies for a vehicle which is less than 5 year old,” he cautioned.

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