Car Depreciation Rate

All you Need to Know about Car Depreciation

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27 Dec 2019


The number of cars sold each year keeps fluctuating as per the market conditions. The overall automobile industry has reported a decline in sales (a decline of 9.66 per cent year-on-year (YoY)) in January 2021. However, top car manufacturers like Tata, Hyundai, and Renault have seen a significant rise in their sales. As per the Federation of Automobiles Dealers Association (FADA) data, the passenger car sales for January 2021 were up by 3.82 per cent as compared to December 2020.

Now, whether you are buying a new car or a second-hand vehicle this year, you must follow certain protocols. Owning a motor vehicle is a huge responsibility. You need to ensure that your car is serviced regularly, and all the vehicle-related documents are up to date. The car documents to be carried with you always include the car insurance policy, vehicle registration certificate, PUC, driving licence. Failing to present any of these documents can lead to hefty penalties as per the New MV Act.

Besides, if you are someone who wants to sell his/her car, you must know your vehicle’s worth in the market. Valuing your car accurately helps the new owner buy a suitable car insurance plan to cover it. When it comes to buying car insurance online in India, several technical terms crop up that can lead to confusion, especially for first-time motor insurance buyers. Depreciation is one such term that can be difficult to understand.

But don’t worry. We are here to help you understand what depreciation is and how it affects your car insurance plan.

What is Depreciation?

Depreciation is nothing but a decrease in the value of assets over time, in this case, your car. It is also commonly known as used car valuation wherein you identify an accurate rate for your used motor vehicle. Note that every car depreciates as it gets older. In the motor insurance realm, the Insurance Regulatory and Development Authority of India (IRDAI) specifies the rate of depreciation of cars with age to determine its Insured Declared Value (IDV). The table below gives an overview of the same.


Age of the car

% depreciation for IDV calculation

Less than 6 months


More than 6 months but not above 1 year


More than 1 year but not above 2 years


More than 2 years but not above 3 years


More than 3 years but not above 4 years


More than 4 years but not above 5 years



It is imperative to know that the depreciation rate for car components is evaluated separately. The depreciation rate mentioned in the table above is used to identify the IDV of your car.

How Does Used Car Valuation Affect Car Insurance?

Valuing your car accurately as per its market value will take some practice. It is obvious that you will receive a smaller amount when selling your vehicle as compared to the amount you invested at the time of its purchase. Moreover, in the event of total loss or theft of your car, you are bound to receive a lower claim settlement on your car insurance (as the IDV is low or used cars).

On the other hand, if you intend to set a higher selling price for your vehicle, you may not attract any potential buyers. Another disadvantage of overpricing your car (setting a higher IDV) is that you have to pay a higher car insurance premium. In simple terms, the higher the IDV, the higher your car insurance premiums will be and vice versa.

However, setting a higher IDV does not guarantee a higher claim payout at the time of settlements. It is thus essential to calculate the right IDV at the time of buying a car and car insurance policy.

Car Depreciation Rate for Car Components

As per the Motor Vehicles Act, the depreciation rates of car components may vary. The table below gives a gist of the same.


Car Parts

Depreciation Rate



Rubber/Nylon/Plastic Parts/ Tyres and Tubes/ Car Batteries and Air Bags


Fiberglass Components


Car parts made of glass

No depreciation


How to Calculate Depreciation?

Many insurers in India provide a car valuation calculator or IDV calculator on their website. The tool helps you determine the cost of your used vehicle after factoring in the depreciation rate. In simple terms, the IDV calculator uses your car’s age, condition, and mileage to determine the current valuation of your vehicle instantly.

The tool provides accurate results and can be very useful when selling your car or buying car insurance for second-hand vehicles. Besides, the tool is very simple to use. All you have to enter is your car registration number, year of manufacturing, make and model of the vehicle, city of residency/registration, etc. At times, to provide accurate results, most IDV calculators request you to enter mileage and details regarding the general condition of the car.

The result generated by the tool gives insights on the following:

  • The amount you shall receive/pay when selling/buying the said vehicle
  • The amount to aim for when trading your car at a dealership

In addition to this, you can do extensive research on fluctuating car prices in India.

Factors Affecting Used Car Valuation

Whether it is your car insurance provider or motor vehicle dealer, they will consider the following factors when valuing your car.

  1. General Physical Condition – This includes car interiors and exteriors. The vehicle should be inspected for any dents, rusts, damages, paint peel-offs, etc.
  2. Car Servicing History – It is essential to check the maintenance history of the vehicle, which also includes checking whether the car gets serviced at an authorised garage or not.
  3. Mileage of the Car – It is imperative to check the car mileage as anything driven below 200 km monthly is undesirable.
  4. Accidents History – You can also consider checking the claim records on the existing car to evaluate its accident history (if any).
  5. Car Registration Certificate (RC) Details – In case you are buying a used car that has changed hands several times, it is essential to check its registration details. Besides, also look into the bank hypothecation, an imprint of car chassis number, engine details, etc.
  6. The drivability of the Car – This indicates checking the suspension of the vehicle along with any noises, lag in speed, or other drivability issues before making the purchase.
  7. Car Functionalities – Besides the car’s general conditions, check whether its features are still in working condition. These include the power window, AC buttons, central lock, lights, steering, door locks, indicators, etc.


In all, you must evaluate your car correctly. Its significance is imperative at the time of renewing car insurance as the premium of your policy is calculated based on the IDV of your vehicle. If you are wondering how much car insurance costs, use the car insurance calculator to determine the same based on your desired coverage and add-on benefits.

You can browse different car insurance plans available on Finserv MARKETS. Based on your needs and convenience, you can proceed to buy the policy of your choice and benefit from features such as cashless claim settlements, hassle-free renewals, extensive coverage, 24x7 assistance, add-on benefits, and more.


  • ✔️Will the valuation of a new car equal 100% of its invoice price?

    As per the car insurance norms, the value of a new car that is less than six months old is 95% of its current market value.

  • ✔️How fast does the car value depreciate?

    Your car’s value depreciates very quickly. Usually, the value of your vehicle will decrease to 91% of its initial market price the minute you purchase it. Over time, the value keeps decreasing as you use your vehicle.

  • ✔️Is there any way to avoid factoring in depreciation in my car insurance policy?

    Yes. You can buy a zero-depreciation cover on your comprehensive car insurance plan. With this cover, you get maximum coverage and save yourself from paying car depreciation costs during claims.

  • ✔️Is zero depreciation cover available on third party car insurance plans?

    No. Zero depreciation cover and other add-on benefits can be availed on comprehensive car insurance only.

  • ✔️Can I buy zero depreciation cover for my 10-year old car?

    Zero depreciation cover is beneficial for cars that are up to five years old.