Demystifying the concept of bumper-to-bumper insurance
Regular car insurance policies often have caveats when it comes to depreciating costs of parts and insurance policies for co-passengers. Fortunately, there are add-ons that are available to help bridge such gaps
A motor insurance policy is a very useful purchase as it offers you round-the-clock protection from accidents, thefts, and other such unpleasant events. Although the Motor Vehicles Act, 1988, mandates all vehicles to be equipped with a minimal level of insurance, it is seen that a comprehensive car insurance policy is opted for by most car owners.
The comprehensive auto insurance cover does offer you extensive insurance protection, but there are some exclusions under this policy as well. Insurance companies offer car insurance add-on covers to plug this gap in coverage. For instance, a comprehensive car insurance policy offers personal accident cover for the owner-driver of the vehicle. But this cover is not extended to the passengers. You can opt for an add-on personal accident cover under your auto insurance policy that protects the passengers as well. If you have a personal accident rider under your medical insurance plan, this car insurance add-on cover will supplement the coverage offered by it.
Depreciating prices of vehicles and parts
Comprehensive car insurance policies do not offer coverage for depreciating prices of vehicle parts. This stands out as a notable exclusion under the coverage of such a plan. Not all exclusions under car insurance can be overridden through add-on covers. But the depreciation aspect can be managed through the purchase of a zero depreciation cover that is also referred to as bumper to bumper insurance.
All vehicles’ prices depreciate with age. In fact, the depreciation comes into play as soon as you drive the vehicle out of the showroom. Insurers determine the Insured Declared Value (IDV) of the car based on its depreciation with age. The IDV is the maximum amount that the insurance company will pay you in the event of a total loss claim such as a car theft.
The rate of depreciation of a car with age is as follows:
As explained above, the IDV of a vehicle is based on these depreciation values. In addition to the above depreciation values for the entire vehicle, each car part will depreciate at a different rate as explained below:
● For parts made of nylon, rubber, and plastic, the depreciation is 50%. Batteries also depreciate at the same rate.
● The depreciation of fibreglass parts is 30%.
● Wooden parts depreciate at a rate that is based on the age of the vehicle, i.e., 5% initially, 10% in the second year, etc.
If your insured vehicle was involved in an accident and you raise a claim for reimbursement of the expenses, the insurance company will only provide you the depreciated value of the car parts that were replaced. This implies that the car owner will have to bear a substantial part of the expenses. This is where the zero depreciation car insurance cover comes to your rescue!
Zero depreciation car insurance
The zero depreciation add-on cover can be used to enhance the coverage of your comprehensive motor insurance policy. This ensures that you receive the complete cost of the car parts replaced, without any reduction for depreciation. At the time of a claim, you will only be required to pay the amount corresponding to deductibles.
The key features of the zero depreciation add-on cover are as follows:
● Also referred to as a nil depreciation cover or depreciation waiver scheme, this policy is not available as a standalone plan.
● The premium amount for this cover is a significant percentage of the comprehensive plan. So, if you don’t mind spending a little extra for the added protection, you can choose this plan.
● The add-on cover assures complete peace of mind to the policyholder as he/she is not likely to pay a huge amount when getting the damaged vehicle repaired.
● The nil depreciation cover is not available for cars that are older than 5 years.
● The add-on cover does not protect the vehicle against total loss scenarios, such as a car theft.
● Some insurance companies also set limits on the maximum number of times you can claim under this insurance.
There is a section of car owners who think that the zero depreciation cover promotes careless driving. However, this is highly debatable. While zero depreciation add-on cover encourages people to raise claims for all damages suffered by the insured vehicle, car owners are still wary of losing their hard-earned No Claim Bonus (NCB). The NCB, hence, acts as a deterrent to raising frequent claims.
Should you buy bumper–to-bumper insurance for your car?
The answer to this question lies in your specific insurance needs, driving abilities, and budget. It makes sense for new drivers to avail complete protection for their vehicles using this cover. People residing in accident-prone areas and those who have cars with expensive spare parts should ideally get this insurance cover as well.
A car is one of the most expensive investments you make in life. With the easy availability of affordable car loan options and budget-friendly cars, almost every household in the country can realise their dream of owning a vehicle. Once you are in possession of your dream vehicle, you should protect it with the best insurance coverage, so that it can serve you in prime condition for years to come.
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