【Automobile Depreciation】How is Automobile Depreciation Calculated? When Does Depreciation Happen? 3 Methods to Keep away from Automobile Depreciation

Automobile depreciation is a vital 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 the way insurance coverage corporations 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 price lower than a brand new substitute element. Insurance coverage corporations in Hong Kong normally contemplate depreciation quantities primarily based on these situations.

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 mirror the improved situation of the automobile after repairs, the depreciation price must be adjusted accordingly.

For instance, Hong Kong automobile insurance coverage corporations will specify of their coverage phrases that they won’t present protection for sure kinds of harm to the insured car:

• Depreciation, put on and tear, mechanical or digital gear failure, failure or harm
• Injury to tires (except the harm additionally causes harm 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 substitute 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. Subsequently, 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 corporations calculate car depreciation in numerous methods. Right here is an instance of find out how to calculate the depreciation price for a model new automobile:

If the car is a ‘whole loss’ after an accident and is lower than 1 yr outdated, depreciation might not apply. Some automobile insurance coverage insurance policies have a ‘new for outdated’ mechanism, which particularly covers claims for automobiles which might be lower than 1 yr outdated and whole destruction. Nonetheless, if the automobile is just partially broken, automobile insurance coverage corporations will usually solely calculate depreciation primarily based on the age of the automobile.

3 Methods to Keep away from Automobile Depreciation

1. Preserve the car in pretty much as good situation as potential. Nonetheless, this doesn’t fully eradicate depreciation.
2. Use used components of comparable age and situation to restore the automobile, however high-quality second-hand components are usually not all the time simple to search out.
3. 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?

Automobile depreciation refers back to the lower within the worth of a automobile because of elevated age and growing older or put on and tear of its components. When making a declare, the insurance coverage firm will take depreciation into consideration and deduct it from the restore prices.

Does car depreciation have an effect on automobile insurance coverage declare quantities?

Sure. Insurance coverage corporations normally calculate the depreciation quantity primarily based on the age of the car, the extent of harm and the mileage, after which deduct it from the compensation quantity.

How is depreciation calculated?

Though every insurance coverage firm has completely different strategies, they typically observe the next precept: For each extra yr of auto age, the unique value could also be diminished by 20% to 80%. For instance, a 5-year-old automobile may see a 40-70% deduction on the unique value.