Introduction (Real Problem-Based)
One of the most common complaints among car insurance policyholders in Pakistan is that their claim amount was much lower than expected after an accident.
Many vehicle owners assume that if their car is insured, the insurance company will pay the full cost of repair or replacement of damaged parts. However, when the claim is processed, they are informed that a certain percentage of the cost has been deducted due to something called depreciation.
As a result, even though the repair estimate from the workshop may be PKR 100,000, the insurance company might approve only PKR 60,000 or PKR 70,000 — leaving the remaining amount to be paid by the policyholder.
Understanding how depreciation works in car insurance claims is important because it directly affects how much money you receive from your insurer after an accident.
In this article, we will explain how depreciation impacts your car insurance claim, what factors influence it, and how you can reduce your out-of-pocket expenses.
How Comprehensive Car Insurance Works
Comprehensive car insurance provides coverage for both third-party liabilities and damage to your own vehicle.
It may include protection against:
- Accidental damage
- Theft
- Fire
- Natural disasters such as floods
- Third-party liability
When your car is damaged in an accident and requires repairs, the insurance company evaluates the cost of replacing or repairing damaged parts.
However, instead of paying the full cost of new parts, the insurer applies depreciation based on:
- Age of the vehicle
- Type of part being replaced
- Usage of vehicle
Depreciation reflects the reduction in value of a car part over time due to wear and tear.
This means the insurance company pays only the depreciated value of the part — not the cost of a brand-new replacement.
Who Should Understand Depreciation?
Understanding depreciation is especially important for:
- Owners of older vehicles
- Individuals who frequently drive in urban areas
- Owners of vehicles with expensive spare parts
- Policyholders without zero depreciation add-on
- Individuals looking to minimize claim-related expenses
Vehicle owners who are unaware of depreciation may face unexpected financial burden during repairs.
Benefits of Understanding Depreciation
Knowing how depreciation affects your claim offers several advantages:
- Better financial planning during accidents
- Realistic expectations of claim settlement
- Improved policy selection
- Ability to choose add-ons such as zero depreciation cover
- Reduced claim-related surprises
Understanding policy deductions helps policyholders make informed decisions.
Limitations
Depreciation can have certain limitations:
- Higher out-of-pocket repair expenses
- Reduced claim settlement amount
- Increased financial burden for older vehicles
- Limited coverage for certain parts
Plastic and rubber components often face higher depreciation rates compared to metal parts.
Estimated Cost in Pakistan
Depreciation affects the amount reimbursed by insurers.
For example:
If the replacement cost of a car part is PKR 20,000 and depreciation is applied at 40%, the insurer may approve only PKR 12,000.
The remaining PKR 8,000 must be paid by the policyholder.
Actual depreciation rates may vary depending on:
- Vehicle age
- Part type
- Insurance provider
Factors That Affect Premium
Premium calculation may depend on:
- Age of vehicle
- Engine capacity
- Location
- Claim history
- Selected coverage
- Add-on benefits
Choosing add-ons such as zero depreciation cover may increase premium but reduce deductions during claims.
Real Example Scenario
Suppose your car is involved in an accident requiring replacement of a bumper costing PKR 15,000.
Without Zero Depreciation Cover:
If depreciation is applied at 50%, the insurer may approve only PKR 7,500.
You must pay the remaining PKR 7,500 from your own pocket.
With Zero Depreciation Cover:
Depreciation may not be applied, and the insurer may cover most of the cost according to policy terms.
This reduces financial burden significantly.
Tips Before Buying
To minimize depreciation impact:
- Consider zero depreciation add-on
- Choose adequate coverage
- Understand policy terms
- Compare insurance plans
- Review deductible amount
- Check replacement cost coverage
Selecting the right policy helps improve claim settlement.
FAQs
What is depreciation in car insurance?
It is the reduction in value of car parts over time.
Does depreciation affect all parts?
Yes, but rates vary by part type.
Can depreciation be avoided?
Zero depreciation add-on may reduce its impact.
Does vehicle age matter?
Yes, older vehicles face higher depreciation.
Is premium affected by depreciation cover?
Yes, zero depreciation add-on may increase premium.
Conclusion
Depreciation plays an important role in determining the final claim amount in car insurance. Understanding how it affects repair costs can help policyholders make informed decisions while selecting insurance coverage.
Choosing suitable add-ons and reviewing policy terms carefully can reduce financial burden during claim settlement.
Author Bio
Ali Raza is a motor insurance content writer who focuses on simplifying insurance concepts for everyday vehicle owners in Pakistan.
Sources / References
- Securities and Exchange Commission of Pakistan (SECP) – Insurance Consumer Information
- State Bank of Pakistan – Financial Awareness Resources
- Standard Motor Insurance Policy Documents from Insurance Providers in Pakistan
