Car Depreciation Rate comes into play at the time of car insurance renewal. But before we delve into that, let us understand the meaning of depreciation and why it is necessary.
Car Depreciation Rate – Concept and Need
The values of all vehicles in the world depreciate over time. That’s because in original brand new condition, it is a perfect machine. However, once you drive it out of the dealer’s place, there is wear and tear in all of the vehicle’s parts, especially the critical (and expensive-to-make) moving parts of the engine. With each passing day, the vehicle’s condition is increasingly not as good as it was when you bought it. In fact, even on day 1, your vehicles’s value depreciates by about 5%! To calculate the insurance premium, insurance companies need to first arrive at the value of the car. To do that, there is a standard Car Depreciation Rate Table as per Indian Motor Tariff. Let’s have a look at the depreciation schedule and how Insured Declared Value is arrived at.
Car Depreciation Rate Table for Car parts
As per Indian Motor Tariff, the depreciation rates are different for different aspects/parts of the vehicle.
- For all Paint work – depreciation rate is 50% for the material cost of the paint. In case a consolidated amount is charged for the paint job, then the cost of paint material is considered to be 25% of the total cost and the 50% rate of depreciation is applied on it.
- For all rubber / nylon / plastic parts, tires and tubes, batteries and air bags – depreciation rate is 50%
- For fiber glass components – depreciation rate is 30%
- For all parts made of glass – No depreciation.
Let’s take an example. If your car goes through an accident and the rear bumper paint is damaged, your service center will charge you 50% of the cost of paint. The rest (i.e. cost of labour + remaining 50% of the cost of paint) is taken care of by the insurance company.
Car IDV Calculation – Based on Current Selling Price
IDV always uses the current selling price of the brand and model of your car, not the price at which you originally bought it for. This cost includes the Basic Cost + Local Taxes + Duties/Cess,etc. and does not include Registration Cost. e.g. your Maruti Swift could have come at a cost price of 5,50,000 when you bought it 3 years back. However, if Maruti has increased the price to 5,60,000 today, the IDV will be calculated by using the depreciation value (as per table) on 5,60,000 and not 5,50,000. Similarly, if the current price of the exact same model is reduced by the company, the depreciation rate will be charged on the reduced price and not on the price at which you bought it. Clear, right? Let’s now look at the car depreciation rate for all the years.
Car Depreciation Rate Table for Calculation of IDV
Shown below is the depreciation table for all motor vehicles in India. IDV is calculated on the basis of the manufacturer’s selling price of the exact same model in the year of calculation. We’ve taken an example of Maruti Suzuki (a truly popular car in India) for the purpose of illustration.
|Age of the Vehicle||Depreciation Rate for Calculating IDV||Example : Maruti Swift VXi Listed Price||IDV Calculation for Maruti Swift VXi|
|Brand New Vehicle (just before purchase)||5%*||e.g. 5,50,000||@ 95% = 5,22,500|
|up to 6 months||5%||e.g. 5,60,000||@ 95% = 5,32,000|
|6 months – 1 year||15%||e.g. 5,60,000||@ 85% = 4,76,000|
|1 year – 2 years||20%||e.g. 5,75,000||@ 80% = 4,60,000|
|2 years – 3 years||30%||e.g. 6,00,000||@ 70% = 4,20,000|
|3 years – 4 years||40%||e.g. 5,25,000||@ 60% = 3,15,000|
|4 years – 5 years||50%||e.g. 5,00,000||@ 50% = 2,50,000|
|more than 5 years (model is obsolete)||decided mutually between owner and insurer||Model discontinued||IDV decided mutually between owner and insurer within a range|
The Sum Insured value of the obsolete models of vehicles and of the vehicles > 5 years old is done after assessment. Such an assessment is done by a Surveyor, Authorized Car Dealer or an Authorized Used Car dealer.
All in all, it is a fairly simple calculation. You will encounter its usage at the time renewal of your car insurance. The premium for each year is calculated based on the IDV for that year as shown in the table above. And the question that you will surely have in mind when renewing, is whether to increase or reduce the IDV of your car/bike. Read the linked article to understand whether you should, and what would be the consequences of doing so.