How depreciation is calculated for the purpose of claims

Though a mandatory motor insurance policy ensures that you get financial assistance whenever your vehicle faces any damage, the entire claim is not paid by the insurance company. There are some deductions from your claim amount and then the company settles the claim. Depreciation is one such deduction which affects your claim amount. Do you know how depreciation is calculated when your claim is settled?

The rate of depreciation is different for the different parts of your vehicle. Here is how the schedule of depreciation looks like:

When you make a motor insurance claim, the depreciation is deducted depending on the parts repaired and their respective rate of depreciation. 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 claim 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 50% depreciation. Thus, depreciation of Rs.3125 would be deducted from the total bill and the claim would be settled for Rs.21, 875.

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:

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.

So, know the rate of depreciation calculated on your vehicle’s parts and also on your vehicle as a whole. Understand how such depreciation affects your claim settlement. Opt for a zero depreciation cover motor insurance policy to protect the value of your car’s parts being reduced due to depreciation and enjoy a higher claim amount. So, be wise with your motor insurance policy and ensure maximum claim settlement.

Choose wisely!