All things wear out with time and your car is not an exception. Depreciation in car insurance refers to the loss of value of a car with the passage of time. This is the reason why the value of a used car is much lesser compared to that of a new car. The older the car, the higher will be the depreciation which ultimately reduces its resale value.
How does depreciation affect you as a car insurance policy holder?
Depreciation comes into play right from the time you buy a car insurance plan. Your car’s IDV or Insured Declared Value is calculated only after deducting the applicable depreciation. For instance, the rate of depreciation for a 1-year-old car is calculated at 5 per cent whereas, for a car aged 10 years, the deducted depreciation rate will be 50 per cent. The older the car, the lower will be the amount offered by the insurer as the rates of depreciation increase with time.
How is depreciation calculated?
Different parts of a car have different life spans and value; hence the depreciation rates differ accordingly. The cumulative depreciation on various parts results in the overall depreciation cost. All car parts except those made of glass are subject to depreciation. The rate of depreciation for rubber, plastic parts, tyres, batteries, tubes and airbags is 50 per cent. While fibre components are depreciated at a rate of 30 per cent. To give you a clear picture, here are the standard rates of depreciation applicable for car insurance.
AGE OF THE CAR – APPLICABLE DEPRECIATION RATES
6 Months – 1 Year 15%
1 Year – 2 Years 20%
2 Years – 3 Years 30%
3 Years – 4 Years 40%
4 Years – 5 Years 50%
6th Year Onward 10% to 15% on the previous year’s IDV is deducted year on year
Also, know more about zero depreciation car insurance.
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