ZD in Car Insurance refers to a Zero Depreciation policy that covers the wear and tear of the vehicle and its parts and provides for depreciation costs. ZD in car insurance is an additional policy taken over by first-party insurance or a comprehensive policy. Thus, it helps in providing complete coverage through the deduction of depreciation factor from the insurance coverage. It fills in the cost gap between the actual price of the car when bought and the Insured Declared Value (IDV) at a given time.
Importance of ZD in Car Insurance
ZD in car insurance is a NIL depreciation insurance policy that provides coverage for the depreciation of the car. It is also known as Bumper to Bumper Insurance. In order to understand the importance of ZD in car insurance, it is necessary to know what Depreciation and IDV are.
What is Depreciation?
All vehicles including cars and the other four-wheelers undergo degradation due to their age and time. The car value drops and perhaps, this is the reason why new cars cost more than old ones. Even a car inside the showroom costs more than what it values once taken out on the road. The depreciation is usually related to non-durable items like fiber, rubber, plastic, etc. ZD in car insurance covers the value of depreciation. Depreciation value of the cars over the years as in the table below:
| Years | Depreciation (In Percentage) |
| Up to 6 months | 5% |
| More than 6 months but less than a year | 15% |
| Exceeding 1 year but not 2 years | 20% |
| Exceeding 2 years but not 5 | 50% |
| More than 5 years but not 4 years | 40% |
| More than 4 years but not 5 | 50% |
What is IDV?
IDV refers to the Insured Declared Value and as the name suggests, it is the cost value that the vehicle holds at a particular time. It depends on the model of the car and its current market price depending on the demand. Therefore, IDV calculation is based on the age of the vehicle according to the registration and manufacturing dates. IDV is the car’s market price listed by the manufacturer minus the depreciation costs.
Insured Declared Value = Market Price listed by the Company – Depreciation Costs
How does ZD in Car Insurance Works?
When you claim the insurance, the insurer counts the depreciation rate. It is calculated as per the directions of IRDAI (Insurance Regulatory and Development Authority of India). IRDAI is a government regulatory agency that formulates laws and governs all insurance companies in India. So this is where this policy plays an important role. A Zero Depreciation policy is an add-on policy that offers 100% coverage from the existing insurance policy. You can receive the full claim amount without any subtraction of the devalued parts of the car.
Most of the policyholders expect a full-coverage as per the car price when they buy it, which is where they get disappointed. If a car is purchased at the price of Rs. 10 Lakhs now, next year its value will be Rs. 9 Lakhs. Subtract the 10% depreciation cost of one year. So if a policyholder claims and expects a full coverage of Rs. 10 Lakh, To his/her shock, it will be around Rs. 9 Lakh. There may be further deductions as per the terms and conditions. Insurance does not cover up certain costs. However, having a ZD in car insurance comes in handy here which covers the 10% depreciation costs amounting to Lakh rupees.
Key Features of ZD in Car Insurance
ZD in car insurance compensates for the full repair or replacement of the vehicle in case of damage or theft of the car, which is its major benefit. However, there are multiple things that a policyholder needs to know about ZD in car insurance before getting one:
- ZD in a car insurance policy offers 100% coverage for all fiber, rubber, and metal parts with no depreciation deduction
- ZD in car insurance is only for new cars up to 5 years and not more than that. It doesn’t apply to cars which are older than 5 years
- Although usually there is no limit to the number of insurance claims, it affects NCB – No Claim Bonus. However, ZD in car insurance limits the number of claims that you can make in a year
- Limits in claims due to a ZD in the car insurance policy are to prevent people from claiming for every dent and scratch. Rather they would approach for serious damages
- Higher premiums for ZD in car insurance because it is an add-on policy and provides higher coverage than a standard policy. It costs somewhere between 15-20% of the standard premium
- ZD in car insurance depends on the age, model, and location of the car. As mentioned earlier, cars older than five years do not qualify for the Zero Depreciation policy. If it is an outdated model or you are in a danger-prone area, it may not be applicable or come with higher premiums
- ZD in car insurance is helpful for those with new/relatively new cars, new drivers who are inexperienced to drive. It is useful in hilly regions or other accident-causing areas. Also, if cars have too many bumps and scratches and parts are really expensive
Depreciation Rates
ZD in the car insurance covers depreciation costs which otherwise is deducted from the insurance amount. The depreciation value calculation is as per the IRDA norms. It has ordained them as follows:
- 50% depreciation is deductible on car batteries and parts of the car that are made of plastic, rubber, and nylon
- The deductible amount for depreciation of fiberglass components can be up to 30%
- Insurers determine the deduction for wooden car parts by the age of the car. The usual depreciation value is 5% in the 1st year, 10% in the 2nd year, and so on
- No deduction for parts of glass
Exclusions
There are a few exclusions that you must bear in mind such as:
- This does not cover mechanical breakdown, electrical failures, oil change/leakage, or engine damage due to it, consumables, or water ingression
- No cover for collisions/accidents while indulging in a race, alcoholic influence or that of drugs, biochemical/nuclear attack, wars, etc.
- There is the replacement of only those parts that degrade or depreciate over time when you make the claim. This is not for those parts which are in perfectly good condition
Comparison Between a Standard Insurance Policy and Zero Depreciation Car Policy
The differences between a basic car insurance policy and Zero Depreciation Policy are explainable on the basis of certain parameters. The most important factor is that the insured has to bear no or very few costs for the damage repair of the car. ZD in car insurance reimburses the garage costs for degraded items that it covers under the policy. Elucidating the comparison between the two types of policies with the help of the table below:
| Parameters | Normal Car Insurance Policy | Zero Depreciation Cover Policy |
| Claim Settlement/Coverage | Depreciation value is not factored in. The insured may have to pay from his own pockets as well for damage repair | Depreciation value covered and complete coverage given that causes no or minimal expense of the policyholder |
| Cost of Repairing | Partially borne by the insurer deducting the costs of devalued/depreciated parts | Maximum coverage is borne by the insurer covering the costs of depreciated items |
| Premium | Low | High |
| Car Age | For cars up to 15 years or as long as valid | For cars less than 5 years of age |
In a standard policy, the insurance provider only covers/reimburses the depreciated value of car parts replaced. This is irrespective of the actual cost. But when you go for a policy that is loaded with ZD in car insurance, you may get the actual cost of the parts. If the car is brand new, the damage repair can dig a hole into the pockets. But with Zero Depreciation, you can keep your car in pristine conditions without bearing expenses on your own.
Is buying a ZD in Car Insurance Policy a Good Deal?
Although there are many advantages of ZD in car insurance as explicated above, it also comes with a higher premium. This makes many car owners wonder about the pros and cons of this policy. This may seem like paying indirectly for the damage repair and s/he rethinks if ZD in car insurance is a good deal. It is worth taking a Zero Depreciation Policy if the car is relatively new, especially a luxurious one. Therefore, it is advisable to pay a little extra on an existing standard policy that safeguards against all damages through the complete cover.