Impact of Depreciation on Car Insurance
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Impact of Depreciation on Car Insurance

There’s no escaping the truth — everything is bound to lose its shine and luster through everyday wear and tear. With the passing of time, the value of a product or an item decreases no matter how valuable or expensive it used to be. This is commonly known as depreciation. Consider this: if you bought the latest phone for 5,000 SR today, and then sold it two years from now. Would you be able to get your 5,000 SR back? Of course, not! After 2 years it will not be as good as new. Another example is your car. As each part of the car wears out with time, the value of your car also diminishes. Therefore, it’s important to learn about depreciation, in order to make an informed decision when purchasing a new car or buying car insurance in Saudi.

How Fast Does My New Car Lose?

New car price value can fall at an alarming rate, says finical expert David Bach. That’s because the moment you drive it off the lot, the car starts to depreciate; and in five years, it can lose 60 percent or more of its initial value.

In Saudi, most insurance companies apply depreciation only on cars above 5 years age. This of course varies across insurance companies, but in general, a car will lose between 10-15% after the fifth year. Besides, your car make and model can impact your depreciation rate.

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For instance, if you bought an economic sedan 5 years ago for 60,000 SR, today it might be worth around 30k-15k SR only.

What Causes My Car to Depreciate?

All cars depreciate: new or old, but there’s one thing that’s always true: New cars depreciate faster than used cars. As a result, many prefer to buy second-hand cars – here’s a guide to transfer car ownership in Saudi
In essence, there are many factors that go into how and why cars depreciate and they’re the same things to avoid when buying a used car:

  • Mileage: with gentle use, you can expect to keep most of your car components longer. On the flip side, the more you drive your car, the faster your car’s value will drop (or depreciate).
  • Reputation: car brands and models that are popular in KSA hold up better over time. Also, if you were to buy a second-hand car, you’ll be looking for a car that has some durability in it. Makes sense, right?  
  • Length of warranty: warranty guarantees reliability. Remember, the better maintained a car is the slower its depreciation will be.
  • General condition: if you avoid damage to the bodywork, and keep your interior and exterior looking fresh, you can keep the price up.
  • Car type: high-end cars tend to depreciate more than economic cars simply because they have higher bills for parts and maintenance.

What Does Depreciation Means in Car Insurance Policy?

if you opt for a comprehensive policy, your car insurance will sort out any needed repairs and pay your bills. Particularly, it will cover wrecks to scratches; without considering the impact of age, wear and tear, and obsolescence. This is because insurance works to put you back in the same position you were in just before the accident. Thus, you’ll have to pay for the difference between the market value of the new part and the depreciated part of your car.

When is Depreciation Applied in Car Insurance?
  • Total loss: when your car is damaged is beyond repair, your insurance company will pay upfront in cash the current value of your car in the market.
  • Partial loss: when your car parts need replacement, your insurance company will deduct an amount for depreciation as specified in your policy table.

Accordingly, it’s important to examine and compare car insurance policies carefully.  pay attention to few numbers such as premium, deductible, and depreciation.

Zero Depreciation Car Insurance

As far as large purchases go, a car for most people is definitely a major purchase. Some people might save up for years, others might get a loan or lease to own to buy a new car. In order to, protect your asset and curb your expenses, buying car insurance is a must. But if you’re looking to get the most out of your insurance; then, consider zero depreciation cover. Especially if you’re:

  1. a new car owner
  2. driving a new car
  3. driving an expensive or high-end car

In such cases, it’s a good idea to avail zero depreciation cover in your comprehensive insurance. With the help of it, you get full reimbursement during the time of claim and get to keep your car in its original value for a longer time. If you’re looking for a good deal, make sure to keep an eye on car insurance offers. Inspect few policies and compare car insurance rates online!