How Does Depreciation Affect Your Car Insurance Claims?


04 September,2023


15 February,2024


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    The depreciation of a car has a significant impact on insurance claims. When you own a vehicle, its value tends to decrease over time due to wear and tear, which is known as car depreciation. This decline in value has financial implications, influencing factors such as the Insured Declared Value and depreciation claim on car insurance policy. In this blog, we explore how depreciation affects car insurance claims.


    What is Car depreciation?

    Car depreciation refers to the reduction in the value of the vehicle due to regular wear and tear over time. Depreciation occurs due to various factors, including time and usage. Essentially, depreciation is the difference in price between the purchase and the approximate market value of a vehicle.


    Impact of Depreciation on Car Insurance

    As your car ages, its value depreciates. This has a direct impact on your car insurance. Insurers consider the depreciated value when determining coverage and claims. Comprehending how depreciation affects your policy can help you make informed decisions; empower you to proactively tailor your coverage to align with your evolving needs.


    Factors that Influence the Depreciation Rate of a Car Insurance

    When it comes to car depreciation on insurance claims, various factors come into play to calculate the extent of depreciation a vehicle. Here are the key factors that impact depreciation claim on car insurance:


    1. Age and Total Kilometres Driven

    The age of a car directly affects its depreciation rate. As a car gets older, its value decreases, and the rate of depreciation tends to increase. The total number of kilometres driven by the car also contributes to its depreciation.


    2. Condition and Maintenance 

    The condition of a car plays an important role in calculating the depreciation expense for vehicles. A well-maintained car with proper servicing is likely to have lower depreciation compared to a car with performance issues or maintenance neglect. Cars which need frequent repairs and show signs of wear and tear tend to have higher depreciation values.


    3. Car Make/Model

    The make and model of a car can significantly impact its depreciation rate. Reputable car manufacturers known for reliable and trustworthy models tend to experience lower depreciation rates. Also, the type of fuel a vehicle uses can influence its depreciation rate.


    Different Rates of Depreciation for Car Parts

    The calculation of the depreciation claim on car is based on the car's manufacturing year, which helps determine the financial value of the claim in case of damage to certain components. After assessing the total cost of the damages, the insurance company deducts depreciation from the claim amount. Here are the depreciation rates applicable for different parts:


    Car Motor Parts

    Rate of Depreciation

    Rubber/nylon/plastic parts, tyres and tubes, batteries, and airbags


    Fibreglass components


    Parts made of glass

    No depreciation


    All other parts, including wooden parts, follow the depreciation schedule based on the age of the vehicle:

    Age of the Car

    Rate of Deprecation

    Not exceeding 6 months

    No depreciation

    Exceeding 6 months but not exceeding 1 year


    Exceeding 1 year but not exceeding 2 years


    Exceeding 2 years but not exceeding 3 years


    Exceeding 3 years but not exceeding 4 years


    Exceeding 4 years but not exceeding 5 years


    Exceeding 5 years but not exceeding 10 years


    Exceeding 10 years


    These depreciation rates play a crucial role in assessing the value of the vehicle depreciation allowance and claim settlement.


    How to Calculate the Depreciation for Your Car?

    You can use a car value depreciation calculator or an IDV calculator to assist you in computing the depreciation rate of your vehicle and determining its actual value. This user-friendly tool allows you to estimate your car's value by providing essential information such as the manufacturer, model, make, and registration details.


    Tax Implications of Car Depreciation

    Car depreciation can have tax benefits, especially if you have taken a car loan. By considering your car as a depreciating asset, you can be eligible for tax deductible car depreciation. Considering depreciation as an expense, you can claim a car loan tax benefit. Please note that you can claim tax benefits towards your car’s depreciation if the vehicle is used for business purposes only.



    Proper maintenance and buying a car with good resale value are essential steps in minimizing car depreciation. Additionally, a car insurance with the Nil Depreciation add-on cover can provide coverage by eliminating the impact of depreciation on your insurance claims.



    1. Do cars have different depreciation rates?

    Different cars experience different rates of depreciation based on various factors like age, model, kilometres covered and maintenance.


    2.  What happens if you don't buy a Nil Depreciation Add-on?

    If you do not purchase a Nil Depreciation Add-on along with a Comprehensive Car Insurance Policy, the claim settlement amount decreases. This is because, without the add-on, depreciation is taken into account when settling the claim.


    3. Why is it important to calculate car depreciation?

    Calculating car depreciation is important for determining the car insurance premium and understanding the approximate market value of your car.


    4. What is the difference between normal car insurance policy and Nil Depreciation Car Insurance?

    There isn’t an insurance policy known as “normal car insurance policy”. It is a general term referring to comprehensive or third-party insurance. While depreciation is considered while settling a claim under the comprehensive insurance, it is not considered under the Nil Depreciation Cover, resulting in a higher claim amount compared to a normal policy.


    5. What will be the depreciation of the car per kilometre?

    There is no fixed rule to calculate the depreciation rate per kilometre for a car, as the depreciation rate varies on different vehicles.

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