Difference between Zero Depreciation and Return to Invoice

When purchasing car insurance, it’s crucial to understand the different types of coverage available to make an informed decision. Two significant add-on covers that insurers offer are Return to Invoice and Zero Depreciation in car insurance. These covers offer additional protection and benefits above your standard policy. In this article, we’ll delineate the distinctions between the two to help you choose the most suitable option for your needs.

What is Return to Invoice (RTI)?

Return to Invoice is an add-on cover that ensures that in case of total loss or theft of the insured vehicle, the policyholder receives the original invoice value of the car. This value includes the vehicle's ex-showroom price, road tax, and registration charges that were initially paid. The Return To Invoice cover compensates for the gap between the insured declared value (IDV) and the invoice value of the car, providing complete financial protection against depreciation.

What is Zero Depreciation?

Definition: Zero Depreciation, also known as Nil Depreciation or Bumper to Bumper insurance, is another add-on cover that offers comprehensive coverage without factoring in depreciation. In the event of a claim, if the vehicle or its parts have undergone depreciation, the zero depreciation cover allows the policyholder to receive the full claim without any deductions. This means that the insurer will cover the total cost of repairs and replacements needed without considering the usual wear and tear that the vehicle has experienced over time.

Return to Invoice Vs Zero Depreciation

Understanding the characteristics and differences between Return to Invoice and Zero Depreciation cover is vital for selecting the best protection for your vehicle. Each cover has its own set of advantages and considerations, so your choice should align with your specific requirements and risk appetite.

Zero Depreciation Cover: Example

Suppose Mr. Sharma owns a car worth INR 10 lakhs and gets into an accident that results in significant damages. The cost of the repairs is estimated at INR 2 lakhs. However, considering the depreciation on the car parts replaced, the insurance company calculates the depreciation at 20%.

Therefore, from the total repair cost of INR 2 lakhs, 20% (INR 40,000) would typically be deducted, and Mr. Sharma would receive INR 1.6 lakhs as the claim amount. However, if Mr. Sharma has a Zero Depreciation cover, he is entitled to receive the full claim amount without any depreciation deduction. Thus, he would receive the complete INR 2 lakhs for repairs.

Return to Invoice Cover: Example

Let’s consider Mrs. Patel who buys a brand-new car for INR 15 lakhs (inclusive of all taxes and registration charges). Unfortunately, after a year, her car gets stolen and is untraceable. Now, the car's current market value is INR 12 lakhs due to depreciation.

Without Return to Invoice cover, Mrs. Patel would receive compensation worth the car's present market value, i.e., INR 12 lakhs. However, with the Return to Invoice cover, she is protected against depreciation losses. She will receive the original invoice value of the car, which is INR 15 lakhs, effectively covering her financial loss completely. This amount will be enough to purchase a brand-new car of the same make and model without worrying about the depreciation that occurred over the year.

When is it advisable to choose the Zero Depreciation add-on?

Opting for Zero Depreciation is advisable under the following circumstances:

• New Car Owners: If you have recently purchased a new car, the Zero Depreciation cover can be a prudent choice as it offers comprehensive coverage without considering depreciation.

• Inexperienced Drivers: Novice or inexperienced drivers, who are more prone to minor accidents and damages, should consider this add-on for full coverage without worrying about depreciation costs.

• High-End Vehicles: Owners of luxury or expensive cars would benefit since the cost of repairing premium parts is significantly high.

• Those Living in Accident-Prone Areas: If you reside in an area where the probability of accidents or damages is high, this add-on provides financial protection against hefty repair bills.

If you own a car with expensive spare parts: Cars whose spare parts are costly to replace should have a Zero Depreciation cover for full claim settlement without deductions.

When is it advisable to choose the Return to Invoice add-on?

Return to Invoice is ideal in these scenarios:

• Brand-New Car: If you’ve just driven your car out of the showroom, Return to Invoice provides the maximum financial safeguard in case of total loss or theft.

• High-Theft Zones Residence: Living in areas notorious for car thefts? This add-on ensures you receive the full invoice price, safeguarding your investment.

• Expensive or Luxury Car Owners: For high-end vehicles, where the financial loss is substantial in cases of theft or total damage, Return to Invoice is a smart choice.

• Peace of Mind: If you seek absolute peace of mind knowing that you will recover the entire cost of your vehicle, this is the add-on to go for.

• Financial Planning: For individuals who have taken a car loan, this cover ensures that in case of total loss, you won't be financially burdened and will recover the total value of the car.

Who can opt for the Return to Invoice add-on?

The Return to Invoice (RTI) add-on can be selected by various individuals under these situations:

• New Car Owners: Those who have recently purchased a brand-new vehicle and wish to secure the complete on-road price of the car in case of theft or total loss.

• High-Value Car Owners: If your vehicle holds significant value or is a luxury car, the RTI add-on is highly beneficial as it compensates for the total invoice value, including registration and taxes.

• Loaned Vehicle Owners: If you have taken a loan to buy your car, the RTI cover is vital. It ensures that in the event of theft or total loss, you can recover the full value, easing financial stress.

• Those Living in High-Risk Areas: Individuals residing in areas prone to accidents, thefts, or natural disasters should consider the RTI add-on for complete financial protection.

Please note: RTI add-on cover is available only till 3 years post-purchase of the car

Who can opt for the Zero Depreciation add-on?

Here’s who should consider opting for the Zero Depreciation add-on:

• Owners of New Cars: If you have a car that is less than 5 years old, a Zero Depreciation cover can be a valuable addition to your insurance policy.

• First-Time Drivers: Novice drivers who are still in the learning phase and are at a higher risk of causing minor damages to their vehicles can benefit immensely.

• Owners of Luxury Cars: High-end cars come with expensive parts. A Zero Depreciation cover ensures you receive full claim amounts without deductions for depreciation, safeguarding against high repair costs.

• Individuals with No Garage: If you don’t have a secure parking space and have to park your vehicle on the street, this cover is advisable due to the increased risk of damages and theft.

• Those Who Desire Peace of Mind: If you want to enjoy complete peace of mind knowing that depreciation won’t affect your claims, the Zero Depreciation add-on is ideal.

Final Thoughts

Navigating through the nuances of car insurance can be a challenging task, but understanding specific terms and covers can significantly ease the process. Zero Depreciation and Return to Invoice are vital add-ons that offer financial protection against depreciation, helping you to maintain the value of your vehicle over time. Opting for either of these depends on your individual needs, the age of your car, and your financial planning regarding vehicle protection. 

Weigh the benefits, costs, and scenarios where these covers can be lifesavers, and make an informed decision that ensures a smooth, hassle-free experience in the unfortunate event of vehicle damage or loss. Always read the policy documents carefully and consult with insurance experts if needed to clarify any doubts and to choose the best protection for your cherished vehicle.

FAQs

1. What is the benefit of a Zero Depreciation cover?

The answer is zero depreciation cover, which guarantees complete protection against claims without taking into account the value of the vehicle or its components' depreciation.

2. What are the advantages of Return to Invoice?

In the event of total loss or theft, Return to Invoice fills the gap between the invoice value and the Insured Declared Value (IDV) by paying the policyholder the car's original invoice value.

3. Which cars are recommended for Zero Depreciation coverage?

Since new cars and cars under five years old have a tendency to lose value more quickly in their first years of ownership, it is frequently advised for these types of cars.

4. Is it possible for older cars to use the Return to Invoice coverage?

The availability of Return to Invoice coverage varies among insurance companies, however it is typically offered for cars that are no more than three or five years old.

5. Can I extend my coverage for Zero Depreciation once a year?

Yes, you can renew it every year; but, depending on the insurance company's policy, there may be a cap on the number of years or claims covered.

6. In the event that a car is stolen, how does Return to Invoice help?

In the event of theft, RTI makes sure the policyholder gets paid the full on-road price of the car instead of simply the depreciated value.

7. Do all auto parts fall under the Zero Depreciation cover?

The majority of items are covered, however some, like tyres and batteries, may have limitations or exclusions. Reading the policy document is essential if you want detailed information.

8. Is the Return to Invoice cover premium expensive?

Because RTI coverage gives more comprehensive financial protection than a normal policy, the premium is typically greater for it.

9. In a year, how many claims may I file under a Zero Depreciation policy?

Answer: Depending on the insurer, the maximum number of claims is usually between one and two each insurance year.

10. Can I upgrade my current auto insurance policy to include RTI and Zero Depreciation coverage?

Yes, these extras are available while renewing your coverage or when you buy a new policy with higher rates. For information on the specific policies and procedures of your insurance company, always contact them.