What is depreciation in commercial vehicle insurance?

Vehicles depreciate with age. Usually, the depreciation of vehicle comes into play when there is claim for total loss. Total loss occurs when the vehicle is stolen. In a situation, where parts of a vehicle are damaged, the depreciated of parts of the vehicle will be considered at the time of settlement of claim, based on the rate of depreciation. This means, the payment is made for the reduced amount and not for the cost of replacement of the part. The rest of the cost of the parts will be borne by the policyholder out-of-pocket.

The rates of depreciation are as listed below:

  • For a typical paint job, a depreciation rate of 50% is applied to the material cost of the paint. However, if 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, tyres and tubes, batteries and air bags the depreciation rate will be at 50%.
  • For fibre glass components, the depreciation rate will be at 30%.
  • For all parts made of glass - Nil.
  • In the case of a paint job, which costs Rs. 15,000 and the cost of the paint in the job is Rs. 3,000, the insurance company will only pay 50% of the cost of the paint. So, Rs. 1,500 will be borne by the insured out of pocket.