What is the Difference Between Zero-Depreciation and Return to Invoice?

Insurance for a car is an additional layer of protection. In India, third-party liability insurance is mandatory. However, it does not cover damage to your car. Therefore, a comprehensive policy will be a perfect choice. Car insurance policies have been going through a plethora of changes to benefit car owners and reduce their financial burden during different accident scenarios. You should therefore buy a suitable policy and renew car insurance within the due date.

Optional covers are the most attractive and beneficial options in car insurance policies. Zero Depreciation and Return to Invoice are the two most prominent optional covers that extend the advantages of car insurance.

So, which is better among the two? Or is it necessary to purchase both? If you know how each one is helpful, you can decide the right option for you.

Zero Depreciation Cover

What is depreciation?

Depreciation refers to the loss of value of assets due to various factors such as  , the passage of time, etc. It applies to individual parts and the overall car as well. The depreciation of the parts will be based on the material used, such as metal, glass, plastic etc.

Why is depreciation important in insurance?

Depreciation is a vital consideration for the insurers while covering the cost of repairs for the car. For example, suppose your car gets damaged due to an accident incurring huge expenditure on the parts replacement. In that case, insurers generally pay for the repair after deducting the depreciation amount associated with individual parts. Therefore, a standard motor insurance policy will protect your car and provide the necessary cover after factoring in the depreciation element. TATA AIG car insurance claim can be lodged after considering many beneficial features such as optional covers, discounts etc. for the policyholders.

What does a Zero Depreciation car insurance cover mean?

In a car insurance policy with the Zero Depreciation add-on benefit, the insurer will provide complete compensation when your car is damaged without considering the depreciation element. It will thus cover the actual cost of replacement of the parts irrespective of their depreciated value. You can opt for Zero Depreciation Cover when you purchase the policy and also at the time of policy renewal. It costs a slightly higher car insurance premium . However, it is worth considering the heavy out-of-pocket expenses you might incur to replace the parts.

Here are a few pointers associated with the Zero Depreciation insurance:

1. It is applicable for your car until five years from the date of manufacture. However, it is subject to the policies of the individual insurer.
2. Based on the insurer and the policy terms, you will have to pay a certain amount associated with the repairs and other charges.
3. There will be a limit on the number of claims you can avail of under this policy in a year and so, it is important to maintain the car insurance details up to date.

Return to Invoice

With a Return to Invoice additional coverage, the insurer will reimburse the original value of your car in case of total damage or theft. However, before understanding the Return to Invoice Cover, it is important to know the meaning of the Insured Declared Value (IDV) for your car.

What is IDV?

IDV refers to the maximum claim your insurer will agree to pay you in case of your car’s total damage. It is equivalent to the market value of the car considering the depreciation with time. The value is based on factors such as the ex-showroom price, model, cubic capacity etc.

Understanding car insurance with the Return to Invoice Cover

With a standard motor insurance policy, the insurer will pay the IDV for the car in the event of a total loss. However, for the car insurance policy with the Return to Invoice Cover, the insurer will pay the original invoice value, including registration charges, road tax etc. Thus, it will cover the difference between the IDV of the car and the original purchase price of the car in case of total damage.

Return to Invoice is considered best for people driving through accident-prone areas or terrain as also where the risk of theft is high. It is also important for people who travel long distances frequently. You can opt for the Return to Invoice Cover when you renew the policy.

Here are a few pointers related to the Return to Invoice Cover

1. Based on the insurer’s policy terms, the option will apply to cars up to three years old.
2. It will be applicable to cars that are damaged totally or stolen and not for small repairs or dents caused by an accident.
3. The Return to Invoice additional cover can increase the premium by about 10% of a standard motor insurance policy. 

Zero Depreciation vs Return to Invoice

So, let us put forward the basic differences here for a better understanding based on the important factors:

1. Compensation
   1. Zero Depreciation – The car insurance with Zero Depreciation will provide complete compensation for repairing and replacing the parts without considering the depreciation factor.
   2. Return to Invoice – The insurer will pay the original invoice value against the IDV in standard policies with this add-on benefit. It includes registration charges, road tax and other related expenses.

2. Applicability
   1. Zero Depreciation – This is applicable whenever there is a repair based on the replacement of parts especially. According to the terms and conditions of the insurer, there will be a limit on the number of claims using the Zero Depreciation Cover.
   2. Return to Invoice – This is applicable in case of total damage or theft to the car and not for smaller repairs.

3. Age of the vehicle
   1. Zero Depreciation – This option is available on cars upto five years of age. However, it is subject to the insurer’s policy conditions.
   2. Return to Invoice – It is generally available on cars upto three years of age.

Summing Up

Optional covers are useful to reduce your out-of-pocket expenses that could arise when the car has to be repaired after an accident. Zero Depreciation and the Return to Invoice Cover are the two common additional covers availed by many policyholders. Zero Depreciation will compensate for the entire repair cost in case of an accident eliminating the depreciation factor. The Return to Invoice Cover will provide the car’s original purchase price in case of total damage or theft as against the IDV in a standard motor insurance policy. You should choose the optional covers according to your driving requirements, location, and frequency of travel.