How depreciation is calculated for the purpose of claims

What is the Rate of Depreciation on Different Car Parts?

Depreciation for your car’s plastic and rubber parts	The rate of depreciation is 50%
Depreciation for your car’s fiber glass parts	The rate of depreciation is 30%
Depreciation on metal parts	The rate of depreciation is 0% for the first 6 months. From the 7th month onwards, the metal parts depreciation rate depends on the age of the car. It is 5% in the first year, 10% in the second year, 15% in the third year and so on
For any paint related job	The rate of depreciation is 50%

How is Car Insurance Depreciation Calculated?

When you make a motor insurance claim, the depreciation is deducted depending on the parts repaired and their respective claim depreciation on car. Let us understand with an example:

Suppose your car suffers damage and is handed for repairs. Here is what the estimated bills look like:

Repairs to broken window – Rs.10, 000

Repairs to plastic parts – Rs.5000

Servicing charges – Rs.10, 000

Total – Rs.25, 000

For this claim, the company would pay the following admissible amount :

Claim payable for repairs to broken window = Rs.10, 000 – 30% depreciation = Rs.10, 000 – Rs.3000 = Rs.7000

Claim payable for repairs to plastic parts = Rs.5000 – 50% depreciation = Rs.5000 – Rs.2500 = Rs.2500

Claim payable for servicing charges – Rs.10, 000

Total claim payable = Rs.7000 + Rs.2500 + Rs.10, 000 = Rs.19, 500

However, if the garage presents a consolidated bill wherein the costs are aggregated and also include painting, 25% of the bill amount would be subject to 50% of depreciation. So, for instance, the above of Rs.25, 000 is presented in one consolidated bill and the car has undergone a fresh layer of paint, 25% of the bill which is Rs.6250 would be subject to a 50% depreciation claim on car. Thus, depreciation of Rs.3125 would be deducted from the total bill and the claim would be settled for Rs.21, 875.

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Car Depreciation Rate for IDV Calculation

Age of the car	Rate of depreciation
Up to 6 months	5%
Above 6 months but up to 1 year	15%
Above 1 year but up to 2 years	20%
Above 2 years but up to 3 years	30%
Above 3 years but up to 4 years	40%
Above 4 years but up to 5 years	50%

In case of Constructive Total Loss or theft of your vehicle, the Insured Declared Value (IDV) is paid. The IDV represents the market price of the vehicle less depreciation based on the age of the car. For IDV calculation, the rate of depreciation is as follows:

Age of the car	Rate of depreciation
Up to 6 months	5%
Above 6 months but up to 1 year	15%
Above 1 year but up to 2 years	20%
Above 2 years but up to 3 years	30%
Above 3 years but up to 4 years	40%
Above 4 years but up to 5 years	50%

So, if your vehicle was bought for Rs.5 lakhs 2 years before, the applicable IDV would be Rs.5 lakhs – 20% = Rs.4 lakhs. Rs.4 lakhs would be payable if your car gets stolen. In case of a total loss Rs.4 lakhs minus the salvage value, would be payable.

This is how depreciation is calculated for settling claims.

If you are worried of your out-of-pocket expenses due to the effect of depreciation on your car’s parts, you can opt for a zero depreciation add-on cover in your policy. This cover nullifies the effect of depreciation and the insurance company pays the entire claim without deducting depreciation. For reducing IDV, you can choose the add-on cover called Return to Invoice which pays the invoice value of your vehicle in case of a total loss or theft.