Some might be completely oblivious with the current method for calculating vehicle depreciation. Frankly, no one can blame those confused souls. Why? Without getting into too much detail, let’s just put a nail on it with a label that reads – unfathomable. To make things simpler, the Insurance Regulatory and Development Authority of India (IRDAI) has proposed two new ways to calculate vehicle depreciation. Here’s how the first one goes:

For new private cars which are under three years of age, the sum insured shall represent the current day on-road price, including invoice value, road tax, registration charges and the value of all accessories fitted by the carmaker. For cars which are older than three years, depreciation would gradually increase from 40 to 60 per cent up to seven years. Once the vehicle surpasses the seventh year, its owner can negotiate on the sum insured with the insurer.

The second method: The sum insured, which is the same as described above, would decrease from 95 per cent for up to six months to 40 per cent for up to seven years. Here too, the consumer will have an option to negotiate on the sum insured with the insurer post the seventh-year.

In case of total loss or theft, the amount payable by the insurer should be the sum insured. For partial loss cases, the proposal says that “proportionate premium for reinstatement of sum insured from the date of loss till expiry will get deducted”. IRDAI has proposed the same age-based depreciation calculation methods for two-wheelers as well.

The insurance regulator has invited comments from the stakeholders on the 166-page exposure draft by December 16, 2019. Post that deadline it will be interesting to see which out of the two proposals if agreed upon, comes into effect. In all probability, the chosen one (with or without any changes) will go live in the next fiscal year.