3 min read
The true purpose of having a comprehensive motor insurance policy is felt without a doubt when your vehicle suffers damages and you make a motor insurance claim. When the insurance company pays the cost of repairs which, otherwise, had been your headache, you feel a sense of calm and relief. But your calm and relief is short-lived when the repair costs are not paid in full. The insurance company makes some deductions in the total repair bills and then the claim is settled. Have you wondered why such deductions are made?
Deductions from your motor insurance claim are done, mainly, for two reasons. One is the portion of compulsory deductible which represents the mandatory amount of claim paid out of your pockets. The other is the depreciation on your vehicle’s parts which have been repaired. This rate of depreciation is different for different parts of the vehicle. Do you know this schedule of depreciation? No? Let’s find out:
Schedule of depreciation on different parts of the vehicle.
|For the plastic and rubber parts of the vehicle||The rate of depreciation is 50%|
|For the fiber glass parts of the vehicle||The rate of depreciation is 30%|
|For other metallic parts of the vehicle||The rate of depreciation is 0% for the first 6 months. From the 7th month onwards, the rate of depreciation 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 done as a part of repairs||The rate of depreciation is 50%|
So, when the claim is settled for repairs done to different parts, the liability of the insurance company is determined after deducting the relevant depreciation of each part.
Your vehicle as a whole is also subject to depreciation. This depreciation is reflected in the decreasing Insured declared Value (IDV) of your vehicle. The IDV of your vehicle is your motor insurance policy’s Sum Insured. It is calculated by deducting depreciation from the listed Market price of your vehicle. The rate of depreciation increases every year as your vehicle ages and so, consequently, the IDV of your vehicle decreases. The rate of depreciation for computing your vehicle’s IDV is as follows:
|Age of the vehicle||Rate of depreciation|
|Less than 6 months||5%|
|More than 6 months but less than 1 year||15%|
|More than 1 year but less than 2 years||20%|
|More than 2 years but less than 3 years||30%|
|More than 3 years but less than 4 years||40%|
|More than 4 years but less than 5 years||50%|
The IDV of your vehicle becomes relevant in case your vehicle is damaged beyond repairs or in case it is stolen. If your vehicle is so badly damaged that the repair costs exceed 70% of the IDV, the insurance company declares the claim to be a Total Constructive Loss. In this case, the IDV less the wreck value (scrap value) would be paid. Similarly, when your vehicle is stolen, the insurance company pays your vehicle’s IDV and settles the claim.
So, whenever you make a claim in your motor insurance policy, remember the schedule of depreciation on different parts of your vehicle and also on the vehicle as a whole to understand the deductions made by the insurance company in settling your claim.
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