Car depreciation is a crucial idea that each automobile proprietor should perceive. Because the automobile wears out and ages, its worth will steadily lower, affecting the quantity of insurance coverage compensation for the car. This time, Kwiksure will focus on with you ways insurance coverage firms calculate car depreciation, analyze the potential causes for car depreciation, and share 3 methods to keep away from car depreciation.
What’s car depreciation? Will it have an effect on the automobile insurance coverage compensation quantity?
Depreciation refers back to the lower in worth of a car because it ages. Some automobile components have a ‘life expectancy’. A repaired element is value lower than a brand new alternative element. Insurance coverage firms in Hong Kong often take into account depreciation quantities primarily based on these circumstances.
It’s acceptable underneath the Hong Kong authorized system for an insurance coverage firm to restore a car and restore it to its pre-damage situation. To replicate the improved situation of the automobile after repairs, the depreciation price must be adjusted accordingly.
For instance, Hong Kong automobile insurance coverage firms will specify of their coverage phrases that they won’t present protection for sure kinds of injury to the insured car:
- Depreciation, put on and tear, mechanical or digital gear failure, failure or injury
- Harm to tires (until the injury additionally causes injury to different components of the car)
- Any extra relevant within the occasion of an accident
The depreciation quantity after the car is repaired or any components are changed shall be assessed by a claims adjuster or skilled from a notary workplace appointed by the insurance coverage firm.
Instance of calculating depreciation price:
A 5-year-old car was partially broken in a site visitors accident. The repairer and the insurance coverage firm’s claims adjuster agree that the restore quantity shall be $50,000. Depreciation is calculated primarily based on 30% of the alternative half value or $15,000. $15,000 Depreciation is predicated on the age of the car (5 years), situation of the car (partially broken) and mileage. Due to this fact, the quantity of this declare can be $50,000 (restore prices) minus $15,000 (depreciation), minus any relevant extra.
How is car depreciation calculated? What conditions will trigger depreciation?
There isn’t a fastened methodology for calculating automobile depreciation. Many insurance coverage firms calculate car depreciation in several methods. Right here is an instance of easy methods to calculate the depreciation price for a model new automobile:
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Depreciation price of recent automobiles
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Buy date
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Depreciation price
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1 yr
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Deduct 20-30% of the unique worth
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2 years
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Deduct 25-40% of the unique worth
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3 years
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Deduct 30-50% of the unique worth
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4 years
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Deduct 35-60% of the unique worth
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5 years
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Deduct 40-70% of the unique worth
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6 years
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Deduct 45-80% of the unique worth
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If the car is a ‘complete loss’ after an accident and is lower than 1 yr outdated, depreciation could not apply. Some automobile insurance coverage insurance policies have a ‘new for outdated’ mechanism, which particularly covers claims for automobiles which can be lower than 1 yr outdated and complete destruction. Nevertheless, if the automobile is just partially broken, automobile insurance coverage firms will usually solely calculate depreciation primarily based on the age of the automobile.
3 Methods to Keep away from Automotive Depreciation
- Maintain the car in pretty much as good situation as potential. Nevertheless, this doesn’t fully remove depreciation.
- Use used components of comparable age and situation to restore the automobile, however high-quality second-hand components are usually not at all times straightforward to search out.
- Add “depreciation safety” to your coverage to get extra complete safety. Even when the automobile is partially broken, the price of repairs is exempt from depreciation adjustment.
FAQ
What’s car depreciation?
Car depreciation refers back to the lower within the worth of a automobile on account of elevated age and ageing or put on and tear of its components. When making a declare, the insurance coverage firm will take depreciation under consideration and deduct it from the restore prices.
Does car depreciation have an effect on automobile insurance coverage declare quantities?
Sure. Insurance coverage firms often calculate the depreciation quantity primarily based on the age of the car, the extent of injury and the mileage, after which deduct it from the compensation quantity.
How is depreciation calculated?
Though every insurance coverage firm has totally different strategies, they typically comply with the next precept: For each further yr of car age, the unique value could also be lowered by 20% to 80%. For instance, a 5-year-old automobile would possibly see a 40-70% deduction on the unique value.
