Depreciation is a common fact of life when you buy any product. Naturally, the value of the product when it is new is more than that of it after, say, a year of use. This value reduction of any product is known as depreciation. When you buy a car, its value is the highest as it has not been used. However, have you noticed that when you are looking at used cars guildford, for example, the used car’s value is much less than that of a brand new vehicle? This is called the vehicle depreciation rate, and this has some effect on car insurance.
Depreciation and Car Insurance
When you initially apply for car insurance, the cost of car insurance (in the form of the premium you pay) is based on the value of your car. Experts say that the value of a car depreciates by almost 20% in the first year of use alone. The car depreciation goes higher with the passage of time, each passing year, to be precise. It is important to know about how depreciation affects your car insurance plan, as when your vehicle’s value reduces, so does the cost of car insurance. One more aspect that gets affected by the lowered car value is the claim of insurance. As the actual car’s value becomes lower than the initial cost, the amount of any potential claim is also lessened.
Depreciation Explained – An Example
The way that depreciation has an effect on your car insurance can best be explained with the help of an example. For instance, let’s say you have just bought a new car worth Rs. 10 lakhs. You will have to pay an insurance premium of Rs. 15,000 in the first year of ownership. Now let us assume that your car reduces in value after a year, to Rs. 9 lakhs. The insurance premium also drops to Rs. 12,000. As this continues with each year that passes, you will discover that the cost of the insurance policy reduces because the value of the car reduces too.
A Remedy to Combat Vehicle Depreciation Rate
Any vehicle’s depreciation rate comes into play when an insurance claim has to be filed. What does depreciation do? It reduces the amount of money you can claim when your car is involved in an accident or a theft. You buy car insurance to financially safeguard yourself from costs associated with any unforeseen circumstances that affect your car adversely. The irony here, is that, as your car depreciates in value, how much you can claim reduces too. This can be a concern when you need funds most. However, there is a solution to this problem. To avoid depreciation affecting the amount of your insurance claim, you can opt for a ‘Zero-depreciation Add-On’. An add-on can be purchased at the time you opt for your original car insurance plan. You can also purchase this when you renew your current policy.
Car Insurance Benefits
Needless to say, car insurance is mandatory if you own a used vehicle or a new one, and not just to adhere to the rule of law, but it’s a must-have to give you cost benefits that meet expenses in times of need. You can get the best insurance plans from Bajaj Allianz and Acko Car Insurance companies. Furthermore, you can purchase nil-depreciation add-ons, but these are valid for the first five years of car ownership. Beyond this duration, car owners must bear costs of depreciation themselves.