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What is Depreciation Shield in Car Insurance?

Published On Dec 02, 2020 12:00 PM By InsuranceDekho

What is a depreciation shield? How does it help? Should you purchase it? Read this article to know everything about it.

Cars are important possessions for us all, we need them for our daily commutes and for are a major purchase. Car insurance provides a layer of protection in this scenario, it protects the car in case of physical damages and helps the policyholder have financial stability in the face of such uncertainties. However, one big issue is that cars like most machines lose their value over time. Hence, when we claim for settlement the insurance company always applies a depreciation rate to the car based on its age to determine the amount of compensation they will provide. This can drastically reduce the claim settlement. The only way to remedy this is by having a depreciation shield. But how does it work? Read this article to find out.

What is a Depreciation Shield in Car Insurance?

A depreciation shield or a zero depreciation cover is an add-on that is available with standalone own-damage plans or comprehensive car insurance plans. It has an additional cost that is added to your total premium and is optional when purchasing car insurance.

How Does a Zero Depreciation Cover Help?

It is important to know that when you make claim settlements that your car insurance will not provide complete reimbursements. The amount of claim you are eligible for depends on your Insured Declared Value (IDV) which is dependent on the depreciation rate of cars. Click here to know more about the depreciation rate. This rate increases with the age of your car making the IDV lower with every passing year. With the Zero Depreciation Cover, however, the customer can make claims without the depreciation rate affecting the compensation amount.

Important Points to Know About Zero Depreciation

The following are some crucial things about the zero depreciation cover you should know before purchasing the add-on:

  1. The premium for this add-on is higher than standard car insurance and most other add-on covers. This is because the policy will no longer factor in depreciation when making a claim. However, remember that despite the costs in case of a mishap the compensation received is sure to be much more than the premium you have paid, making it financially viable in the long term.
  2. There is a limit to the number of claims you can make under the zero depreciation cover every year. Thus, make claims only when you require them, not for minor issues.
  3. Zero depreciation cover is only available for cars that are less than five years old.

Who Should Opt for a Zero Depreciation Cover?

It is advisable for the following types of car owners to purchase a zero-depreciation cover for their vehicle:

  1. Luxury Car Owners: Since luxury cars come at a premium price range the cost of the car parts create a big difference with the zero damage cover. Moreover, even if they are older because of the relatively higher cost the reimbursement still makes financial sense.
  2. New or Inexperienced Drivers: It is natural for drivers who have only recently started driving to have more chances of having accidents. Thus a depreciation cover makes more financial sense in cases of accidents.
  3. Living in Accident Prone Areas: If the area you live in is prone to mishaps such as theft, car accidents etc. it is better to purchase a zero depreciation cover and receive higher claim amounts.
  4. Expensive Spare Parts: Certain car brands and models have relatively expensive spare parts, in such cases, it is more financially viable to purchase a zero depreciation cover.
  5. Reduce Out-of-Pocket Costs: In the event of a mishap, the zero depreciation cover provides higher claim amounts for the insurance holder, hence there are lower out-of-pocket costs involved as the depreciation rate is mitigated by the cover.

Also Read

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Important Points to Consider While Selling a Car!


In an overview, having a zero depreciation cover will allow you to receive claims that are not affected by the depreciation rate of cars. However, remember that it is available only for cars which are less than five years old. If you are buying car insurance make sure to compare car insurance companies, calculate car insurance premiums, check the insurance companies network of cashless garages and select the relevant add-on covers for you. With online options, this can all be done with a few clicks. If you want to know more about car insurance click here and if you want to know more about other add-on covers click here.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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