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

Car depreciation is a crucial idea that each automobile proprietor should perceive. Because the automobile wears out and ages, its worth will regularly lower, affecting the quantity of insurance coverage compensation for the automobile. This time, Kwiksure will focus on with you the way insurance coverage corporations calculate automobile depreciation, analyze the attainable causes for automobile depreciation, and share 3 methods to keep away from automobile depreciation.

What’s automobile depreciation? Will it have an effect on the automobile insurance coverage compensation quantity?

Depreciation refers back to the lower in worth of a automobile because it ages. Some automobile elements have a ‘life expectancy’. A repaired element is value lower than a brand new substitute element. Insurance coverage corporations in Hong Kong often think about depreciation quantities primarily based on these circumstances.

It’s acceptable underneath the Hong Kong authorized system for an insurance coverage firm to restore a automobile and restore it to its pre-damage situation. To mirror the improved situation of the automobile after repairs, the depreciation fee 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 sorts of harm to the insured automobile:

• Depreciation, put on and tear, mechanical or digital tools failure, failure or harm
• Injury to tires (until the harm additionally causes harm to different elements of the automobile)
• Any extra relevant within the occasion of an accident

The depreciation quantity after the automobile is repaired or any elements are changed will likely be assessed by a claims adjuster or skilled from a notary workplace appointed by the insurance coverage firm.

Instance of calculating depreciation fee:

A 5-year-old automobile was partially broken in a visitors accident. The repairer and the insurance coverage firm’s claims adjuster agree that the restore quantity will likely be $50,000. Depreciation is calculated primarily based on 30% of the substitute half worth or $15,000. $15,000 Depreciation relies on the age of the automobile (5 years), situation of the automobile (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 automobile depreciation calculated? What conditions will trigger depreciation?

There isn’t a mounted methodology for calculating automobile depreciation. Many insurance coverage corporations calculate automobile depreciation in numerous methods. Right here is an instance of the way to calculate the depreciation fee for a model new automobile:

If the automobile is a ‘complete loss’ after an accident and is lower than 1 12 months outdated, depreciation might not apply. Some automobile insurance coverage insurance policies have a ‘new for outdated’ mechanism, which particularly covers claims for vehicles which might be lower than 1 12 months outdated and complete destruction. Nonetheless, if the automobile is just partially broken, automobile insurance coverage corporations will typically solely calculate depreciation primarily based on the age of the automobile.

3 Methods to Keep away from Automotive Depreciation

1. Preserve the automobile in nearly as good situation as attainable. Nonetheless, this doesn’t fully remove depreciation.
2. Use used elements of comparable age and situation to restore the automobile, however high-quality second-hand elements will not be at all times straightforward 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 automobile depreciation?

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

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

Sure. Insurance coverage corporations often calculate the depreciation quantity primarily based on the age of the automobile, 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 completely different strategies, they often comply with the next precept: For each extra 12 months of auto age, the unique worth could also be decreased by 20% to 80%. For instance, a 5-year-old automobile may see a 40-70% deduction on the unique worth.