Recently there was a boon for customers of telecom industry, when the new policy permitted the mobile number portability from one service provider to another. It was no less than a revolution that had a double sided benefit. One, a customer no more needed to change their cell number while quitting their current service provider.
Two, the service provider became more stringent towards quality services for the customers. Predominantly, the bonuses were all for the customers. That’s what the facility of portability comes with. If you are aware, the good news is that you have a similar luxury with your health insurance too. That means you can transfer your policy to another insurer keeping about all the benefits of your policy intact.
Some key benefits of health insurance portability are:
• Mostly, all the clauses for pre-existing diseases will be considered as is with the new insurer – including the time spent before all the diseases are covered
• The new insurer may waive off the minimum initial waiting period until no cover is provided
• By and large, there will be no change in other bonuses and the minimum sum insured, when you switch to a new insurer. In addition, you can choose to hike up your sum assured
• The new insurer may provide you with additional benefits for switching
• Introduction to new products and enhanced coverage that may be better than the existing one
• While the premium can be high, there is a possibility it can be low too. So it’s a plus
However, there are a few conditions in transferring your health insurance policy from your current insurer to another.
• You should be regular with paying your premiums – failing which your portability may be rejected
• The new insurer may charge you a higher premium than your current insurer
• The portability request must be placed at least 45 days prior to the policy renewal date
• The policy will be transferred only at the time of policy renewal
An exception you must know of
During the insurance period, the customer gains credit for the waiting period of pre-existing diseases. It has been mandated by Regulatory and Development Authority (IRDA) that the new insurer must consider the credit gain and the waiting period for the policy portability – only if the policy has been in continuation with timely premium payments and no defaults.
Minor limitations
If you are covered under a high risk category, regardless of your policy duration and regular premium payments, the new insurer has all the authority to charge a higher premium as part of their underwriting rules. Also if you are eligible for a no-claim bonus from your current insurer, the insurer may not consider paying you for that. In addition, the new insurer will have its own terms and conditions which may exclude expected benefits. So don’t forget to do a detailed research before you switch.
Gone are the days when redeeming your mutual funds was a lengthy and hectic process. For this, one had to go to a branch, fill extensive forms and only then one was able to liquidate one’s investment. The process has become much simpler over the years. Funds can now be easily redeemed online with a click of a button.
However, before redeeming your mutual fund schemes, make sure to consider a few things so that your investment is not impacted. Even though there is no hard-and-fast rule that pinpoints the right or the best time to redeem a mutual fund scheme, there are some situations under which investors could consider exiting or redeeming their mutual fund investments.
For instance, if your fund is consistently underperforming, or if there are changes in objectives of the scheme that are no longer in line with your goals, you could consider redeeming your funds. Additionally, if you find out that there are many similar types of funds in your portfolio, selling some of them could give the investor’s portfolio a more diversified look.
Here are some of the instances when you should consider exiting your fund;
Change in asset allocation
Various asset classes such as equity funds, debt funds, balanced funds, etc. are included in mutual fund schemes. The asset allocation of a mutual fund scheme depends on the type of scheme it falls under. For instance, while most equity funds usually invest fully in equities, some schemes also split their allocation between equity and the rest in other sectors such as debt or allocation between domestic and international equity. While a fund manager can change allocations, but only within the limits specified, not beyond them.
Here is how the spread looks like for,
i) equity funds – invest 80 per cent–100 per cent in equity and/or 0–20 per cent in money market securities;
ii) balanced funds – 65 to 80 per cent in equity and/or 15 to 35 per cent in debt securities, and 0 to 20 per cent in money market securities.
Usually, experts say asset allocations change due to differential returns from various asset classes. Market movements also impact asset allocation significantly. Under such circumstances, if the fund no longer suits your goals, or is not in line with your risk appetite, you could plan on redeeming the fund.
Approaching goals
Among the various advantages of mutual funds, their ease of buying and selling, professional management, inbuilt diversification mechanisms, are some of the top factors that make them ideal for investors to meet their future goals and financial requirements. Therefore, if you are nearing the financial goal that you were saving for, and you need money, you could redeem your funds.
Industry experts usually suggest, when the goal deadline is 2 to 3 years away, an investor should move his/her moving from equity mutual funds (with long-term objectives) to debt funds, as they are liquid and good for short-term goals.
A Systematic Transfer Plan (STP) might be the best way to go about this. Similar to the process of SIP, it allows investors to periodically transfer/redeem certain units from one scheme and invest in another scheme of the same mutual fund house.
Changed or Postponed goals
We all know that chances of returns go up exponentially with the duration one stay invested in mutual funds. Simply put, the longer you stay invested in it, the more are the chances of higher returns. However, different type of goals needs different duration to stay invested.
For instance, for short term goals such as buying a car or going on a short vacation, one might need to invest in a mutual fund for roughly two or three years. While long-term goals such as buying a house the investment tenure could be 7–8 years or even more.
Therefore, if you start investing with a short-term goal in mind, and a few months down the line, you change your mind and think of directing the investment for a long term goal, you can do so but you are required to also make changes in the asset allocation of the scheme. It is so because, while a short term investment will be more inclined towards safer options like debt funds, long term goals require investments in equity funds. Hence, a change of goals could also be the reason to redeem your mutual funds.
Under-performance
It is always suggested by financial planners and advisers never to time the market, and as mutual funds are market-linked instruments, it is quite normal to see falling returns, especially over the short term.
However, you should only worry about your fund’s performance, after checking how other funds in the category have performed, or are performing. If your fund has been underperforming as compared to the peer group for more than two years or so, it should be a signal for you to exit that fund and move on.
For novice retail investors, witnessing erosion in the capital invested is hard to tolerate and instead of withstanding the market turmoil and waiting to see the notional loss turning into gain on market recovery, many investors having low risk tolerance either redeem their investments or stop their investments through systematic investment plan (SIP).
But is it a right decision to stop investing or redeem existing investments in low market to stop further loss?
To understand the implications of discontinuing SIP or redeeming your investments when the markets are down, you should compare the equity investment with investments in physical assets like gold.
If you sell gold at Rs 30,000 per 10 gram that you bought when the price was Rs 35,000 per 10 gram, you will lose Rs 5,000. But if you wait till gold prices increase to Rs 40,000, you would gain Rs 5,000 by selling it at high prices. Moreover, instead of selling gold at Rs 30,000 per 10 gram, if you buy another 10 gram and then sell the 20 gram gold at Rs 40,000 per 10 gram, you would gain Rs 15,000.
So, when the price of equity falls, you should invest more instead of redeeming your investments, because redemption in low market would turn the notional loss in real loss.
Similarly, you shouldn’t stop your SIP in low market. It is because, under SIP, same amount is invested in equal interval and when NAV of funds are lower at low market, you would get more units. As fund is denoted by the product of NAV and number of units (i.e. NAV x No. of units), higher the number of units you accumulate, the higher will be the fund value when NAV moves up in high market.
So, to get a higher return from your investments in equity MF, you should never stop your SIP at low market and if possible, make some additional investment to acquire more units to maximise the return.
We all worry about money. It is easy to understand why one would be worried about having little or no money. But, we also worry when we have money. This is especially true if our money is invested in the stock market and there is a market crash. In 2020, during the 1st wave of the COVID-19 pandemic, stock markets crashed dramatically and caught most investors unawares.
While a crash in stock markets or a market correction is impossible to predict, there are various strategies that investors can utilize to minimize its impact on their investment portfolio.
In this blog, we will discuss five ways to cushion the impact of the market crash on your portfolio.
Don’t Sell in a Panic
Whenever the bears wreak havoc on the stock market, you may think of pulling out the money and folding in your losses. However, a bull rally can correct the stock market crashin no time. The stock market has always recovered well, no matter how impactful the crash.
Instead of panic selling, therefore, you should focus on long-term investment. That’s the only way you will reap good rewards.
Ignore the Market Sentiments
Amateur and nervous investors can engage in panic buying and selling during volatile markets. Sadly, their mass panic is palpable. So you may end up doing FOMO investing and losing sight of your investment goals.
It is better to trust your research and the history of stocks at such a time. They can help you navigate the market turmoil far better.
Buy the Dips, But Pick Wisely
This goes without saying, but you should keep some funds handy for shopping during bearish runs. Think of a crash like an end-year sale from your favourite brands.
You can invest in high-performing mutual funds and equities at a reasonable valuation. It is also a good time to buy more from your winning investments. However, do so after due diligence. Keep a list of quality stocks handy. Adding blue-chip or dividend stocks to your portfolio is also a good idea, as they have built time-tested economic moats.
Not Every Company on the Radar Deserves Your Money
If you are going to buy on dips, pay special attention to stock selection. Don’t fall for the market narratives without proof. Look out for factors like EBTIDA, cash flows, capital allocation, valuations, profit made, among others.
You also want to avoid investing in internet-based companies. Or companies having massive commodity influence as they are challenging to work out.
Better to Stay Still
The jitters in the equity market may make you anxious to take some action. However, as history goes, the changes are often short-lived. They are not powerful enough to alter a company’s situation. So you are better off laying low and waiting for the next rally of bulls.
Bottom Line
In the world of the stock market, corrections come like seasons. So if you’re new to the scene, we recommend building some bear market strategies using the tips above.
The ongoing covid-19 crisis has further highlighted the importance of having an adequate emergency corpus. With so much uncertainty about what could happen in future, you may be wondering if you should hold a portion of your emergency corpus in liquid funds or move the entire sum into safer options such as bank savings accounts, especially because liquid funds have seen greater volatility in net asset values (NAVs) recently, owing to liquidity-led disruptions in the debt markets.
What is a liquid fund?
Debt mutual funds are currently classified based on the maturity of their investments. Liquid funds invest in instruments that have a maturity date of 91 days or less like treasury bills, Government securities, call and notice money. Currently, liquid funds are providing a return higher than traditional savings bank accounts. The redemption procedure in a liquid fund is also very simple. Once the redemption request is submitted, the funds get credited to the investor’s account in one working day.
What is the investment tenure for liquid funds?
Financial planners recommend investing in these funds for periods up to sixmonths. These funds work very well to save for short term goals since they are not susceptible to capital loss. This makes them perfect for goals like school fees or holiday expenses. Liquid funds are also excellent for investment in equity funds using the Systematic Transfer Plan (STP), where a fixed amount gets transferred from the liquid fund to an equity fund, giving return on both types of funds.
What are the risks involved in liquid funds?
AS With every investment, there is a slight element of risk involved. HOwever, liquid funds carry the lowest element of risk among other mutual funds. These funds generally invest in instruments with high credit rating. When it comes to the fund NAV, you can also get the NAV data on the weekends.
What are the tax implications on liquid funds?
If you stay invested in a liquid fund for more than three years, you will be able to claim the benefit of indexation on your capital gains. If you liquidate before 36 months or 3 years, the gains are added to your tax slab and taxed at regular slab rates. When you choose the dividend option, the fund is subject to dividend distribution tax of 29.12%. This means the dividends are tax free in your hands.
Billionaire investor Chamath Palihapitiya says successful investing is all about behavior and psychology and even the best model or analysis in the world is of no use if investors press the panic button during tough times. “The most important thing you can do to maximise the odds of success is figure out what, if any, behavioral advantages you have or can create for yourself,” he says in an interview to a financial website.
Palihapitiya — a Canadian-American billionaire of Sri Lankan origin — founded a California-based venture capital firm named Social Capital in 2011. Although he holds a degree in electrical engineering, Palihapitiya has had an illustrious career in the finance industry over the past two decades. His stock picks and investments as head of Social Capital have outperformed the S&P 500 by more than 1.3 percentage points over the past few years. His firm has a diverse portfolio of investments in healthcare, financial services, education, consumer products, frontier and enterprise sectors.
The investor held important positions at American tech firms AOL and Facebook before becoming a venture capitalist. Now he is on the board of many successful companies and is also a part-owner of the Golden State Warriors NBA team.
In 2020, Palihapitiya started the Social Capital Hedosophia Holdings Corp. V, a special purpose acquisition company (SPAC), that has since facilitated mergers, share exchanges, asset acquisitions and initial public offerings (IPOs) of several businesses. The venture capitalist has gained a huge fan following on social media and has more than a million followers on Twitter and regularly appears on news media to offer opinions on the finance and technology industry.
Invest in the winners
Palihapitiya says he follows a philosophy of putting his money into the winner of an industry as success will then surely follow.
“If you try to outsmart the market, chances are you won’t win. I personally have tried this several times, without much success. Remember, the average buyer makes the simple decision to invest in the category winner. There are reasons why a certain company is the best in its industry. And there’s a reason everyone is investing in this company,” he says.
It is easier to buy the winners of a particular industry and let them grow over time instead of trying to find a company that will be able to outperform the current top company. “You can spend weeks scouring over every financial statement and drawing up theories on why you believe a company will outperform the top company in the industry. Wouldn’t it be simpler and less stressful, and probably financially more rewarding, to just pick the top company?” he asks.
Invest for the long run
Palihapitiya says people should invest for the long term as that is the key to successful investing in stocks. “Whether it’s been my job, my life or my investing, I’ve learned that long-termism is an important key to success. I’ve gotten the most back when I invested my time, vulnerability and money with very few short-term expectations but many long-term ones.”
Prioritise your needs
Investors have to priorities their needs, he stresses. It is very important to set up a proper list of needs and address them wisely so that they can make the most out of these for a better future. There are some things that will not change no matter what the situation is. Investors need to keep their focus up so that their preparation for the good times remains intact and doesn’t get derailed through discouragements and disappointments, says the veteran investor.
Do your homework
All veteran investors say it is important for investors to do their homework well enough before choosing a stock. Palihapitiya says investors will have to see the performance of companies and then decide to invest in the ones that are healthy enough and can last the distance.
Monitor data efficiently
The founder of Social Capital lists monitoring data as a sound way to make an investment. His investing style is not about looking at technical patterns or stock charts but about looking at a business to understand it and then investing in the company concerned.
Maximise the odds of success
There is no one right way to value a company, he agrees. “Most of us have no idea whether investing in an early stage company will lead to outsized returns. As a result, the best way forward is to maximise the odds of success as an investor. It’s not about guaranteeing success, it’s about guaranteeing the best odds of success.”
Palihapitiya says human psychology has a huge impact on the kind of decisions that investors make. Investors have a tendency to repeat what they are most comfortable seeing and doing. “There’s a theme in psychology called repetitive compulsion. That psychological trait actually has incredible insights in business as well, particularly in investing. What it really means is that you have a tendency to be compelled to repeat what you are most comfortable seeing and doing. So, when you have a psychological blindspot, this idea of repetitive compulsion just reiterates those loops over and over. It really takes somebody who can dispassionately, but empathetically, point at those things and say ‘Hey, why are you doing that?’ or ‘why do you believe those things that you do?’ or ‘why did that happen the way that it did?’,” he explains.
But there are some rules that investors can follow to prevent themselves from doing something irrational, he says, especially when everyone else is losing their cool:
1. Don’t trade stocks; buy companies
When investors buy stocks, they should view them as buying companies. Buying a company is like hiring a great CEO to work for investors and their families. “You can rest well knowing that Bezos, Musk, etc, are on the job. That’s not true for all CEOs so decide accordingly,” he says.
2. Try to buy companies that can potentially earn 10x in 10 years
“If I’m not willing to do that, I don’t buy it. This doesn’t mean that I will bat 100% but that isn’t the goal. The goal is to become disciplined in a process, repeat this process and don’t deviate,” he says.
3. Have patience
Once investors have bought a company, the hardest decision is to take no decision and to patiently wait to be right. “If I become too short-term focused, I am my worst enemy and will overthink, overreact and underperform my potential,” he says.
4. Try not to look at prices every day
The market has an amazing way of giving investors great opportunities to see the truth, he says. “You just need to realise that the price and the truth aren’t always the same. Looking at daily prices makes it harder for me to see the difference.”
5. Don’t play with derivatives
Options seem fun but they are like allowing a toddler to play with a loaded gun, warns Palihapitiya. “You can have a few close calls but it eventually catches up with you. In short, I have come to believe that the markets are the summation of everyone’s collective consciousness in any given moment,” he says.
According to Palihapitiya, the market constantly overreacts and under-reacts in any given moment, based on investors’ psychology. But over time, he says, sanity always prevails. Hence, by creating investment rules and living by them, investors give themselves the best chance of not losing momentum in moments of chaos, finding and sticking to their conviction and letting prices catch up, he adds.
Money doesn’t grow on trees, but the right savings and investment plans can help it grow. The pandemic has triggered a great deal of uncertainty and risk aversion in the way we invest our hard-earned money. Many of us want to turn away from high-risk instruments or lower our exposure to them while increasing our low-risk investments. Debt instruments are considered safe and include bonds, debentures, certificates of deposits, debt funds, fixed deposits, etc.
Keeping your money in a bank is safe, but your savings account will give you a mere 3.5% return. One way to diversify your corpus is bank FDs and corporate FDs. Bank FDs offer a return of 5-5.5%, whereas corporate FDs earn higher returns while maintaining low-risk levels. A corporate FD is similar to a bank FD but gives you a better return with low-risk. Since most of the instruments are rated, corporate fixed deposits have a high degree of safety level. Corporates offer returns of 7.5%-8.5% for a 1 year to 5 year deposit and 8-9% on a cumulative basis.
How do you choose the right company to invest in?
You need to consider 3 parameters:
⦁ Ratings: These term deposits are usually rated for their credibility by a few rating agencies, namely ICRA, CARE, CRISIL, etc. Generally, companies with a AA to AAA credit rating indicate a moderate to high safety of interest payment. As you go lower in the rating chart, the degree of safety reduces.
⦁ Parentage: While assessing the quality of the corporate, we need to factor in the likely support from a higher-rated parent in the event of distress. The number of years in existence and corporate governance standards of the Group. A strong parent can lend comfort to the investor.
⦁ Interest rate: The best part about a company FD is the higher interest rate. The rates paid are comparatively much higher than what is paid for an average bank FD. It is important to check and make comparisons for interest rates before opting for one. Certain NBFCs and companies offer higher interest rates when compared to others for the same tenure. The reason for corporates (or more precisely, NBFCs) offering FD rates that are higher than those of banks is because NBFCs get returns from their lending business which are higher than those earned by banks, and are therefore able to pass these on to depositors. At the same time, NBFCs ensure that their lending operations are within specified parameters and that asset quality is maintained.
Some of the key risks, however, to keep in mind while investing must not be ignored. Make sure that the company has been paying regular interest to its shareholders. The balance sheet of the companies has shown a consistent track record of profits at least for 3 years. With the number of start-ups entering the market rising, make sure the company has been in existence for the last 5 years at least. Ensure they are offering realistic returns (2-3% more than a bank FD).
Do not fall prey to those companies which are offering very high returns, where the risk-reward is unrealistic. Make sure these companies are listed on the stock exchange, companies that are listed will be well regulated. Do not place all your eggs in 1 basket, diversify to limit your risk. Do not opt for very long tenures with lock-ins, invest for 1-2 years and take stock of the performance of timely payments annually. Don’t go by misleading ads, always calculate the CAGR and compare it with others.
Finally, is the timing right for your investment? Choosing to invest when interest rates are high means returns of your FD will be the highest, but also account for inflation. Systematically and periodically investing 10% of your income can prove to be a good strategy in the initial stages of your life and gradually increasing this ratio to 40% as you grow older can be a good strategy in the long run. Investing ultimately is laying out your money now, to get more in the future.
A life insurance audit, however, is a comprehensive study of your existing coverage to make sure it still fits your needs.
Back in your parents’ or grandparents’ day, they might have purchased a life insurance policy, put it in a file and only thought about it when the bill came for the annual premium or when the insured passed away. And that was usually fine. Today, however, policies are a more complicated financial tool that needs to be monitored — much the same as any other assets you hold in your portfolio. The goal is for your life insurance policy to be there for your beneficiaries when they need it most. That is not the time you want them to be surprised, so it’s vital to perform a policy audit on an annual basis and take any corrective action that is necessary.
The audit itself is about more than just the policy. This is an annual opportunity to review your plan and identify any gaps in your coverage resulting from any occurrences from the previous year. It allows you to address any lifestyle changes and answer such questions as:
• Is the policy’s original goal still valid?
• What type of policy do you have?
• Are the original beneficiaries still valid?
• Is the ownership structure of the policy still correct?
• Are there any health issues that could have an effect on your policy?
• Do you still need the life insurance policy?
• Do you need to request or review any recommendations from your insurance advisor?
In order to accurately evaluate your policies, you will need to obtain specific information. The audit will depend on the amount — as well as the quality — of the information received. You should have the original policy and illustrations, the most recent annual statement and a current in-force illustration. Provide these to your advisor, and they will review the information gathered and advise you on any gaps in your plan. The audit is done so you can ensure that all of your plans and wishes for your family and estate are being met.
In addition to looking at your policies, this is also a good time to review the performance and financial health of your carrier. This is a crucial step in your audit. Not every insurance company is on equal footing. Your advisor needs to evaluate the financial stability of the company, as well as its ability to pay any future claims, plus its overall investment portfolio and how the company is rated compared to other carriers. The main goal is to make sure your carrier can meet its future obligations.
After the audit is complete, your advisor should be able to provide you with a clear picture of your current coverage and any shortfalls in your plan. If there are any gaps, your advisor should provide you with recommendations to rectify the situation. If it turns out that after the audit that you remain properly covered, then it is time well spent to ensure your peace of mind.
There are many things that we do automatically each year to ensure the safety of our families: regular maintenance on our cars, changing batteries in smoke detectors, etc. We do this to provide safety and wellbeing for our loved ones. Don’t they also deserve the same commitment for their financial future? One afternoon each year with your advisor will provide your family with the financial protection they deserve.
Depreciation in motor insurance often refers to the loss in value of an asset over time due to factors such as age, wear and tear, and obsolescence. Vehicles, in general, are depreciating assets. For example, a new car will cost more than an older one. Similarly, there is a certain depreciation associated with all the materials the car is made up of such as glass, plastic, metal etc. Each of the materials or parts have a different rate of depreciation.
In the event of an accident, if your car is damaged, you may not be able to recover the entire expense incurred on the parts replacement. The general insurance company only pays for the replaced parts after deducting the depreciation amount. The insured person has to pay for the difference between the market value of the new part and the depreciated part of the car.
It is a good idea to avail zero depreciation for car insurance. With the help of it, you get maximum reimbursement during the time of claim and get the most out of your car insurance policy.
What is Zero Depreciation Car Insurance Cover?
A car insurance with zero depreciation cover helps protect your car against all physical damages caused to the car without factoring in the element of depreciation. Although a standard motor insurance policy covers you against losses arising in case your car is damaged or stolen when you file for a claim settlement, the compensation is received after a standard deduction of depreciation.
On the other hand, a car insurance with zero depreciation cover can fetch you the entire compensation amount. A zero depreciation add-on cover can be availed for brand new vehicles and also can be opted for at the time of policy renewal.
In a zero depreciation car insurance policy, the entire claim amount is paid by the Car Insurance Company without considering the depreciation on the value of the car. Obviously, you have to pay slightly more in terms of your premium. However, this add-on feature is highly recommended to everyone considering the fact that it eliminates the possibility of any out-of-pocket expense from the owner.
Benefits Of A Zero Depreciation Car Insurance Cover
• Helps curb out-of-pocket expenses since depreciation cost is not taken into account while filing for a claim settlement
• Most of your claims regarding the insured parts are settled without taking the depreciation amount into consideration.
• It adds more value to the basic automobile insurance coverage and makes your investment almost nil
With this cover, you can be assured of a complete peace of mind. Also, with all major insurers offering this cover, you can save yourself a lot of hassle by purchasing a nil-depreciation cover by paying a little extra premium.
Zero Depreciation Cover Vs Normal Car Cover
Let’s quickly look at how a zero depreciation cover varies from a normal car insurance cover:
Value consideration at the time of Claim Settlement: Depreciation does not affect the claim settlement and the full compensation is given to the insured in case of zero depreciation cover. On the other hand, in case of a normal car insurance cover, the claim amount is received after a standard deduction of depreciation.
Premium: The premiums to be paid for a zero depreciation cover are higher than those for a normal car insurance cover.
Repairing Costs: The repairing costs of fiber, glass, rubber, and plastic parts are borne by the insurer in case of zero depreciation cover whereas, in case of a normal car insurance cover, these repairing costs have to be borne by the insured.
Age of the car: A zero depreciation cover is meant for new cars whereas a normal car insurance cover can be taken for cars older than 3 years.
Factors to Consider before Opting for Zero Depreciation Cover
The following are a few important points to consider while opting for car insurance with zero depreciation policy:
• Consider the age of your car. The car insurance zero depreciation policy is applicable to cars under the age limit of 3 years. So in other words, only new cars are eligible for 0 depreciation car insurance.
• As compared to a regular car insurance policy, zero depreciation car insurance will be slightly more expensive in terms of premium. It is not advisable to pay high premiums for cars older than 3 years. Although, if you own a luxury car or live in a high-risk area, you should consider opting for zero depreciation cover add-on. A zero depreciation policy premium depends on 3 main factors:
a) Age of the car
b) Model of the car
c) Your location
• You can make only a certain number of claims under the 0 depreciation car insurance. This is to limit the customers from making claims about every small dent in their car.
Remember that in case you make a claim, with a basic car insurance policy, the insurer only reimburses the depreciated value of the car parts replaced. As per the Insurance Regulatory and Development Authority of India (IRDA), the following rate of depreciation for the car parts has been defined:
• On rubber, nylon and plastic parts, and batteries – 50% depreciation be deducted,
• On fiberglass components – 30% depreciation be deducted
• On wooden parts – depreciation be deducted as per the age of car (such as 5% in the first year, 10% in the second year, and so on)
Who Should Buy Zero Depreciation Cover?
In order to protect your brand new car from any unforeseen events, it is advisable to opt for a zero depreciation cover. Buying a zero depreciation car insurance in India can also prove to be beneficial to:
• People with new cars
• People with luxury cars
• New / Inexperienced drivers
• People living in accident-prone areas
• If you worry about small bumps and dents
• If you have a car with expensive spare parts
It is a general belief that zero depreciation car insurance policy is apt for new or inexperienced car drivers as they are more prone to get the car damaged. However, this cannot be considered as a rule of thumb because there have been numerous cases where the most experienced drivers were caught in unfortunate events due to the fault of other drivers.
