Vehicle depreciation rates: What they mean and how they affect you

You might think your car is worth a lot, but as the year passes, its value starts reducing. That's when your car starts depreciating. It's not enough to just get less money for your car; it also changes how much your insurance company will pay you if it gets damaged or stolen.

This guide will explain what depreciation is, how to figure it out, why it's important for insurance claims, and how to keep costs low.

What does it mean for a car to lose value?

The worth of your car goes down over time because of things like damage, age, and use. This is called lost value. Depreciation means that cars lose value over time, just like technology or furniture.

Decreasing the value of a car over time is a key part of finding out its Insured Declared Value (IDV). In the case of theft or total loss, the Insured Declared Value (IDV) is the most your insurance company will pay out.

When you make a claim, depreciation can also change how much of your repair bill you get back. This is especially true if you need to replace parts. Damaged bumpers only got 60% of what they were worth when they were claimed. This is because the value dropped over time.

How do you figure out how much a car has lost in value?

Depreciation isn't just picked at chance when it comes to insurance. The Insurance Regulatory and Development Authority of India (IRDAI) has set standard rates for how much an old car loses in value each year.

To put it briefly, this is how it works:

●       5% for up to six months

●       15% for six months to a year

●       20% for one to two years

●       30% for two to three years

●       40% for three to four years, and

●       50% for four to five years.

You and the insurance company agree on the IDV for terms longer than 5 years. In this case, if your car is three years old, the insurance company will likely lower its IDV by 40%. This process changes how much your insurance pays out and how much you pay in fees.

Part-wise loss of value in claims

Depreciation doesn't just affect the total value of the car; it also affects individual parts when they are fixed or replaced.

These are the standard rates of depreciation for frequently replaced car parts:

●       50% of the parts are plastic, rubber, nylon, and fibre.

●       Glass parts: 0% (no loss of value)

●       Parts made of metal: 0% to 30% (depending on age and state)

●       Painting: 50% (on supplies)

This means that if you file a repair claim, your insurer will deduct the parts' depreciation from the total repair cost, and you must pay the difference. Unless you have an add-on that lets you deduct no-depreciation costs, which we'll talk about next.

Decreasing the value of your car is more than just a number on a piece of paper; it has real-world effects on your pocket.

How to do it:

1.    Less money paid out for claims

If you need new car parts after an accident, the claim amount will be reduced by the devaluation. You'll have to pay for the difference yourself.

2.    IDV (Insured Declared Value) dropped

When it comes to insurance, the older your car is, the lower its IDV. This means that if it gets totalled or stolen, you will get less money.

3.    Figuring out the premium

When IDV goes down, rates usually go down too. This may appear to be advantageous, but it also means that your coverage amount is reduced. This benefit is something to think about when you are trying to decide between saving money and being protected.

What does this mean for add-ons?

Some policy add-ons, like depreciation cover or return to invoice, help make up for depreciation. You can choose these things wisely if you know how depreciation works.

Is it possible to lessen the effects of depreciation?

Even though you can't stop your car from getting old, these tips will help you save money as well:

1.    Depreciation cover

This add-on, which is also called a bumper-to-bumper cover, makes sure that depreciation is not taken out during claims. The insurance company pays for all the parts that need to be replaced, even the ones made of plastic and rubber.

2.    Go back to the bill cover

This add-on helps close the gap between the IDV and the estimated value of your car in case it is totalled. The price covers both the registration fee and the road tax.

3.    Regular car care

Keeping your car in good shape may not stop it from losing value, but it can help your claim if there are any issues.

4.    Renewals on time

If you don't renew your car insurance, your car may be looked at again for IDV and given a lower value. You can maintain a lower decline rate by renewing on time.

Depreciation for used cars and selling them again

Depreciation has a direct effect on the value of your car when you want to sell it. People who are thinking about buying often look at market trends that show how much cars lose value based on brand, usage, accident history, and upkeep. A car with fewer kilometres, full service records, and a good cosmetic shape will lose its value more slowly than one that hasn't been well taken care of.

Even if you don't plan to file a claim, knowing how much your car is worth less each year helps you decide when to sell it, what repairs to make, and how much to ask for it.

Make peace with depreciation or protect against it

Now that you know what car depreciation is and how it is calculated, you’re better equipped to choose the right car insurance coverage. Even though depreciation will happen, it doesn't have to hurt your funds.

As long as you choose the right insurance and add-ons, you can control how depreciation affects claim settlements, resale value, and the costs of daily ownership. You now know why your repair bill isn't always paid in full and how to fix it.