Over a decade since their debut, zero-depreciation policies have become the top choice for 95% of new car buyers. Often referred to as bumper to bumper coverage, they do not deduct for part depreciation as vehicles age, which has resulted in increased claim frequency.
In the past, motor insurance claimsincluded a depreciation clause to align with the principle that claimants should not financially benefit from a claim, but this often left them with out-of-pocket expenses despite the intention to cover the replacement value of old parts.
Besides deduction for depreciation, the standard motor policy also had deductions for non-metal parts which is not there in zero-depreciation covers.
According to a study by Policybazaar, over 95% of new car buyers choose this coverage. It is not only new car owners, but also policyholders renewing or switching insurers who opt for zero-depreciation coverage. More than 85% of buyers choose this coverage for up to the third year of ownership.
Nitin Kumar, head of motor business at Policybazaar, explains that claim amounts under zero-depreciation policies are higher than average claims due to the absence of deductions. Claims under policies without zero depreciation average between Rs 13,000 and Rs 14,000, whereas those with zero depreciation policies see claim amounts rise to Rs 21,000 to Rs 22,000.
