What is depreciation in vehicle insurance?
Depreciation in vehicle
insurance often refers to the loss in value of insured vehicle 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.
Since an
insurance is a contract of indemnity, no one should gain profit from it. In the
event of an accident and your car is damaged, you may not be able to recover
the entire expense incurred on the parts replacement. The Insurer 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.