Insurance - Why Do I Have to Pay for Depreciation?

[Sanjay Yadav123]

I got my car damaged after the accident and now when I am making the claim , the insurance company is asking me to pay for some parts as depreciation. Can anyone tell me what is this fuss about?

[Jijo_Malayil]

Sanjay Yadav123 That is usual practice if you just have a comprehensive insurance policy. They calculate depreciation costs based on the item’s Replacement Cost Value (RCV) and its life expectancy. However, if you have the zero-depreciation insurance policy, all the costs are borne by the insurance provider.

[Arjun]

Sanjay Yadav123 How old is your car? You may have noticed that the insurance premium goes lower every year. There are two reasons for this. 1. No claim bonus( applicable if you haven't made any claims with the previous policy ) 2. Lower IDV The IDV is the incidental depreciated value of your car. Like your cars actual value, the insured value also comes down. This leads to a lower insurance premium every year. Now this lower IDV, though applied to the whole car, trickles down to individual parts also. The value of your used engine would be lower than a new one. Same with gearbox, doors and all components. So, the part damaged in this case has a lower value than the new part that is replacing it. Your 2 year old car door has lower value than a new one. This is the actual depreciation amount you are asked to pay. To make to feel a little better about the system,that is the reason you pay a lower premium every year.

[Harsh Agarwal]

Sanjay Yadav123 Hi Sanjay, Reason you need to pay of depreciation is because every part attracts depreciation and current market value of part is calcuated after depreciation. Say, a new part costs 10000K, but your car is 3 years old and now if you need to replace the part, insurance company will not pay whole amount it will depriciate for 3 years of your usage and reimburse rest. This happens only if you have not bought zero depreciation policy or Bumper to bumper policy If you buy bumper to bumper policy you will not have to pay for depreciation.

[Harsh Agarwal]

Sanjay Yadav123 The main reason is you have not bought Zero depreciation policy. In regular policy, the insurance company does not give 100% value but gives depreciated value of the part. Say a part costs Rs 10000 with 30% depreciation, you will have to pay Rs 3000 from your pocket

[Title_Loan_1]

Hi,
Also, bear in mind that even with zero depreciation cowl, you may have to be compelled to pay the necessary deductible quantity once creating the insurance.
Thanks.