Electric Car Depreciation and Insurance: A Complex Relationship

With a growing concern for the environment, the interest in electric cars is on the rise. Today, electric cars have taken the industry by storm with high sales, and it is anticipated that more people will switch to electric vehicles soon.

 

On the question of depreciation in electric car, when it comes to the wear and tear cost of a vehicle, they are usually taken out from the insurance claim amount. But how does insurance handle the depreciation cost for electric cars? Keep reading to find out more about the specific details of the insurance process for electric car depreciation.

 

What is Depreciation?

Depreciation is the reduction in the value of an asset, like a car, when it goes from being brand new to a used one. In the automobile industry, residual value is a common way to measure depreciation.

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A low residual value isn't good news for car owners because it means the item lost a significant portion of its value quickly. For example, a car with a 50% residual value would lose 50% of its value in three years or 36,000 miles.

 

Electric cars tend to experience an expected annual depreciation rate of 15 to 20% during the first three years of ownership. This data is based on research and statistics, which provide the foundation for understanding the depreciation trends of electric vehicles.

 

How Average Car Depreciation Value is calculated?

The average depreciation of a car is determined by consumer demand. Depreciation rates for various types of electric cars can differ. Factors such as brand reputation, access to charging infrastructure, and competition among electric car manufacturers can impact the depreciation rates of specific models.

 

Generally, electric cars with less advanced technology tend to depreciate more quickly. Also, due to the rapid evolution of electric car technology, the average annual depreciation of these vehicles might decrease earlier than expected.

 

If you are thinking of buying an electric car, it is important to consider the factors that contribute to the depreciation on electric vehicles. These factors will play a significant role in determining the depreciation rate of the electric vehicle you would like to buy.

 

Factors That Affect the Electric Cars Depreciation Cost

Here are the factors that would affect the depreciation cost of electric cars, which would have an impact on Electric Car Insurance:

 

1. The Vehicle Cost

The cost of depreciation for your electric car is closely linked to its initial value. If you are driving a costly, high-end electric vehicle, the depreciation expense tends to be higher compared to a more budget-friendly car. Usually, maintaining a premium car comes at a higher cost, which would have higher depreciation.

 

2. Mileage

Another factor impacting electric car depreciation is the mileage an electric car covers on a single charge. As the miles increase, the depreciation costs tend to rise. The more you drive your electric car, the more it devalues over time, affecting its overall depreciation.

 

3. Vehicle Size

The size of a vehicle is a key indicator of its overall emissions. Larger vehicles tend to emit more pollutants compared to smaller, more compact cars. For instance, SUVs typically have higher emissions than compact cars or electric vehicles due to their size and engine capacity.

 

4. Age of Vehicle

Generally, as an electric car ages, its depreciation cost tends to increase. When a car is new, its depreciation value is higher, but over time, as it gets older, the vehicle's worth reduces, which would lead to a decrease in its resale value. As the car ages, maintenance issues will arise, and it will contribute to higher maintenance costs and the overall cost of depreciation.

 

5. Cars Brand Reputation

The brand of your car is an essential factor when considering depreciation costs. Certain car manufacturers have a reputation for making batteries that are highly durable and have longer lifespans. So, electric car models from these companies will have lower depreciation costs over time due to their reliability and longevity.

 

6. Service History

The service history of the car owner plays a part in deciding the depreciation cost, especially when buying electric car insurance. If you have a history of responsible car maintenance, fewer insurance claims, and effective management, you are likely to have lower depreciation costs. Properly maintaining a car and having a good track record in terms of insurance claims and overall management can lead to reduced depreciation expenses.

 

Depreciation Cost of Electric Car Vs Petrol/Diesel Car

When making a motor insurance claim, the cost of a car's depreciation is considered and deducted from the claim amount. However, in the case of having Zero Depreciation Car Insurance, the depreciation cost of the car will not be considered, and the claim pays out the full value (Except any deductibles).

 

While a petrol/diesel car's engine generally lasts between 10 to 15 years, an electric vehicle's battery life span is significantly increasing with improvement in technologies. Most electric car batteries in India have an 8-10-year warranty, and it can last even after that. Presently, in India, both petrol/diesel vehicle and electric vehicle depreciation rate are same.

 

Conclusion

As batteries account for about half of an electric vehicle's cost, they have a significant influence on the EV depreciation rate. That being stated, if you are looking for insurance coverage for your electric car, why not take a look at the Electric Car Insurance policy options that Shriram General Insurance has to offer?

 

FAQs

1. What does depreciation value in car insurance mean?

The car insurance depreciation value is the monetary value of depreciation. The claim amount is directly impacted by this value, which rises with each passing year.

 

2. Why is Insured Declared Value important when it comes to car insurance?

A car's Insured Declared Value (IDV) is its value during a specific insurance term. It roughly matches the car's market value. If the car has severe damage, such as damage that cannot be repaired or total loss, this amount becomes more important.

 

3.What is the impact of mileage on electric car depreciation?

The rate at which electric car loses its value is mostly decided by its mileage. Generally speaking, a car's value depreciates with its age and mileage.