You handed over the car to the authorised garage after the accident. They quoted a repair bill of Rs 1,85,000. A few weeks later the insurer's settlement letter lands in your inbox: payable amount Rs 84,000. You scroll down and see the cuts. "Depreciation on rubber and plastic parts — 50%." "Depreciation on metal parts as per IRDAI schedule." "Salvage value of replaced parts — Rs 12,500." "Compulsory excess — Rs 2,000." You sit there and wonder if any of this is legal or if the insurer simply made up half of it.
Some of it is legal. Some of it almost certainly is not. The motor insurance industry in India runs on a depreciation table and a salvage logic that has its roots in a sound principle — indemnity is not betterment — but is often applied so aggressively that the policyholder is left holding the bag. This article walks you through the deductions, explains what the law actually allows, and shows you how the consumer forum treats undocumented or excessive cuts.
The Foundation: Indemnity, Not Betterment
Every Indian motor own-damage policy is built on the principle of indemnity. The classic statement of the principle, repeated in the standard treatises on insurance law, is that the insured must be put back as nearly as possible into the same financial position as before the loss — but never into a better position. The case usually cited is Castellain v Preston (1883) 11 QBD 380, the English authority that Indian courts and writers have followed for more than a century.
That is where depreciation comes in. If your three-year-old car needs a new bumper, and the insurer replaces it with a brand-new bumper without any deduction, you walk away with something better than what you had on the morning of the accident. The insurer recovers the cost of "betterment" through depreciation on parts. In principle, that is fair.
The trouble starts when the depreciation figures are applied mechanically — at the highest possible slabs, on parts that have nothing to do with the age of the car, or without producing the actual IRDAI table on which the cut is supposedly based. The principle of indemnity does not authorise the insurer to keep cutting until the customer is paying for half of the repair.
How Depreciation Is Calculated on a Repair Claim
Indian motor insurance practice, following the IRDAI motor schedule, divides depreciation into three buckets:
- Rubber, plastic, nylon and battery parts — a flat 50% depreciation regardless of the age of the car. This is built into the schedule because these parts wear quickly.
- Fibre glass components — usually 30%.
- All metal parts (sheet metal, body parts, engine parts, etc.) — depreciation rises with the age of the vehicle, on a sliding scale. The standard schedule looks something like this: nil in the first six months, 5% from six months to a year, 10% in the second year, 15% in the third year, 20% in the fourth, 25% in the fifth, 30% in the sixth, 35% in the seventh, 40% in the eighth, 45% in the ninth, and 50% from the tenth year onwards.
In addition, the labour charges are usually paid in full without depreciation, because labour is a service, not a part. Paint, in most standard policies, is partly depreciated (a 50% material plus full labour formula is common).
These slabs are not invisible. They are part of an IRDAI-notified schedule, and any policyholder is entitled to a clear statement showing the schedule applied to their case. When a surveyor's report or an offer letter quotes a depreciation amount, you are entitled to ask: which slab? Which age band? Which part?
"Zero Depreciation" — The Cover That Removes Most of These Cuts
Many newer policies offer an add-on commonly called Zero Depreciation, Bumper-to-Bumper or Nil Depreciation cover. For an additional premium, the insurer agrees to pay the full cost of replaced parts in own-damage claims for a stated number of years, without applying the standard depreciation slabs. The cover usually has its own limits — a cap on the number of claims per year, exclusions for certain consumables, and so on.
If your policy includes Zero Depreciation cover and the insurer is still applying depreciation cuts, that is a straight breach of the policy, not a grey area. Pull out the policy schedule, identify the Zero Depreciation endorsement, and quote it in your grievance email. A consumer forum has no patience with an insurer that takes the extra premium for Zero Depreciation and then forgets the endorsement at claim time.
What Is Salvage Value and When Can the Insurer Deduct It?
Salvage is the residual value of the damaged parts that are being replaced, or, in a total-loss claim, the residual value of the wreck. The logic is simple: if your damaged bumper has been removed from the car and is now sitting at the garage, the insurer has paid you for a brand-new bumper. The old, damaged bumper still has some scrap value. If you keep the old part, the insurer is entitled to deduct that scrap value, otherwise you are recovering twice — once in cash and once in the salvageable scrap.
Salvage deduction is fair when:
- The deducted amount reflects the realistic scrap-market price of the part.
- The insurer has applied it only to parts the customer is actually keeping.
- The basis of the figure (a scrap quotation, a market reference) is documented.
Salvage deduction is not fair when:
- The figure is round-number arithmetic with no documentation behind it.
- The damaged parts have been retained by the garage and the insurer is also pocketing them on resale.
- The "salvage" exceeds what any real scrap dealer would pay.
- In a total-loss claim where the insurer is taking the wreck, the salvage is still being deducted from the IDV.
The principle of indemnity cuts both ways. The insurer cannot recover salvage twice. If the wreck has been surrendered to the insurer, salvage should not be deducted; if the customer is keeping the wreck, the deduction must be realistic.
What the Case Law Says
The case law on excessive depreciation and salvage cuts has built up steadily in Indian consumer forums. A representative example: in the case of a new Ambassador car stolen within 20 months, the consumer forum held that the insurer could not compel the assured to accept a settlement amount less than the surveyor's report and that the depreciation table provided by the insurance company itself had to be applied "equitably, just and reasonably." (See AIR 2007 (DOC) 184 NCC: (2006) 3 CPR 15.) The forum did not throw out depreciation altogether — it accepted that depreciation was a legitimate concept — but it refused to let the insurer apply it in a way that was harsher than its own table.
The Supreme Court case of Pradeep Kumar Jain v Citi Bank (1999) 6 SCC 361 is also instructive on how forums handle depreciation. In that matter, the National Consumer Commission awarded Rs 76,990 on the basis of the sum assured for the first year, less 10% depreciation, for the loss of the car. The depreciation was modest, age-appropriate, and clearly documented. That is the standard a consumer forum will hold the insurer to: depreciation must be reasoned and supported by a published table, not a free-floating cut.
On ambiguity, the standard Indian authority is again General Assurance Society Ltd v Chandumull Jain (1966) 3 SCR 500, where the Constitution Bench held that any ambiguity in a contract of insurance must be construed against the insurer who drafted it. Translated into a depreciation dispute: if the policy does not clearly say that a particular bracket of depreciation applies to a particular part, the insured gets the benefit of the doubt.
When Excessive Cuts Become Deficiency in Service
Section 2(11) of the Consumer Protection Act, 2019 defines "deficiency" broadly: any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law, or which has been undertaken to be performed under a contract. An insurance policy is a contract. The IRDAI motor schedule is a regulatory framework with legal force. When an insurer applies depreciation that the schedule does not authorise, or charges salvage that is not supported by evidence, both legs of the definition are satisfied — the contract is breached and the law is violated.
The remedy under Section 35 of the same Act is a complaint to the District, State or National Consumer Commission, depending on the amount. The Commission can order the insurer to pay the balance, simple interest on the underpaid sum, costs of the litigation, and where the conduct is particularly bad, compensation for harassment. In a related forum, the Insurance Ombudsman scheme offers an alternate, often faster, channel where the value of the claim is within the Ombudsman's limit.
What Should I Actually Do Now?
If you are staring at an offer letter where the cuts feel disproportionate, work through this checklist before signing anything:
- Get the full offer letter and surveyor's report in writing. If only a number has been communicated on the phone or by SMS, ask for a written breakdown with each deduction line item.
- Identify each deduction and its claimed basis. Write next to each one: depreciation (which slab?), salvage (against which parts?), excess (compulsory or voluntary?), other.
- Pull out the policy schedule and any add-on endorsements. Especially check for Zero Depreciation, Engine Protect, Return to Invoice, or any other add-on that may neutralise some of the deductions.
- Demand the underlying IRDAI depreciation table that the insurer says supports the cuts. The insurer should be able to share this. If they cannot, the cut is suspect.
- For salvage cuts, ask for the scrap valuation. If none is shared, get one or two independent scrap quotes for the relevant parts and keep them on file.
- Send a written grievance to the insurer's grievance officer, listing each disputed cut and the policy or schedule basis you rely on. Give them 15 days.
- If the policy includes Zero Depreciation and depreciation has still been applied, send a separate clear letter quoting the endorsement number from the schedule.
- Do not sign the discharge voucher unconditionally. Write "under protest, balance disputed" on the voucher before signing if you must take the partial amount to pay the garage. If your loan EMI is also being affected, check our related guide on banking grievances.
- If the grievance reply is unsatisfactory, file a complaint with the Insurance Ombudsman, or directly file a consumer complaint under Section 35 of the Consumer Protection Act, 2019 before the appropriate Consumer Commission.
- Preserve every document. The policy schedule, the FIR or accident memo, the towing bill, the garage estimate, the surveyor's report, the offer letter, all your emails. This is your case file and decides how strong your award will be.
A Quiet Word About Getting Help
Most depreciation and salvage disputes are not won by argument over the phone. They are won by a short, well-drafted legal notice that quotes the right clauses of the policy, the right paragraphs of the IRDAI schedule, and the right consumer-forum decisions. At Pinaka Legal, we routinely draft these notices within a couple of days of seeing the file, and have a consumer complaint ready to file if the insurer does not respond meaningfully. If you have an offer letter you do not trust, that is the right moment to have a lawyer look at the numbers — not after you have already signed the voucher.
The Last Thing to Remember Before You Sign
Depreciation and salvage are not insurer privileges. They are calibrated deductions designed to keep the policy a contract of indemnity — to ensure you are made whole, but not richer. Once a cut crosses that line — once it is applied without documentation, without authority in the policy, or in a way that no published IRDAI table supports — the law calls it deficiency in service, and gives you a forum that knows how to put the missing rupees back in your pocket.
— Written by the Pinaka Legal Editorial Team. For queries about a specific claim, call +91 8595704798 or email info@pinakalegal.com.
Frequently Asked Questions
Is depreciation on parts always legal in a motor insurance claim?
Generally yes, as long as the cut is supported by a published IRDAI schedule and is applied honestly. The principle is indemnity, not betterment — you should not get a brand-new part for free in place of an old one. But the cut must be reasoned, documented, and at the slab actually applicable to the age and type of the part. Random cuts or cuts above the published slab are not legal and are routinely struck down by consumer forums.
What is the depreciation percentage on rubber and plastic parts in India?
Under the standard IRDAI motor schedule applied by Indian insurers, rubber, plastic, nylon and battery components attract a flat 50% depreciation regardless of the age of the vehicle. Fibre glass parts are typically depreciated at 30%. These rates are built into the schedule because these parts have shorter useful lives than the body of the vehicle. They cannot be bargained down to zero unless a Zero Depreciation add-on is in force.
How is depreciation on metal parts calculated?
On a sliding scale tied to the age of the vehicle. The standard slabs run roughly as follows: nil in the first six months, 5% from six months to a year, 10% in the second year, 15% in the third, 20% in the fourth, 25% in the fifth, 30% in the sixth, 35% in the seventh, 40% in the eighth, 45% in the ninth, and 50% from the tenth year. Your policy schedule and the IRDAI motor schedule will give the exact bands. Ask for the table if the insurer has not shared it.
Can the insurer deduct salvage from my total-loss claim if it is also taking the wreck?
No. That would be a double recovery in the insurer's favour and is contrary to the principle of indemnity. If the insurer is taking the wreck for itself — usually by treating the transfer of the registration certificate as part of the settlement — it cannot also deduct the wreck's scrap value from the IDV. If both have been done, you have a clear deficiency-in-service ground in a consumer complaint.
My policy says Zero Depreciation cover but the insurer still applied depreciation. What now?
Quote the endorsement directly. Send a written grievance to the insurer attaching the policy schedule and pointing to the Zero Depreciation endorsement (with its endorsement number). If the cuts are not reversed, the consumer forum will treat this as a textbook deficiency-in-service case, because the insurer took the premium for the add-on and then ignored it at claim time. Forums in India usually award the balance with interest and costs in such matters.
Can excessive depreciation be challenged before the consumer forum?
Yes. Section 2(11) of the Consumer Protection Act, 2019 covers any shortcoming in the manner of performance of a contract or a regulatory requirement. The IRDAI schedule is the regulatory requirement; the policy is the contract. Where the insurer applies depreciation that the schedule does not authorise, or fails to share the table on which the cut is based, the District, State or National Commission can direct the insurer to pay the balance, interest and costs.
Do I get a copy of the surveyor's report by right?
Practically yes. IRDAI's claim settlement directions expect insurers to share the surveyor's report with the insured on request. If the insurer refuses to share it, that refusal is itself a strong indicator of deficiency and can be relied on before the consumer forum. Send your request by email so you have a paper trail. The report is the single most important document in any motor own-damage dispute.
What does 'indemnity not betterment' actually mean for my claim?
It means the insurer will pay you enough to put you back where you were the moment before the accident — not better. A brand-new headlamp installed in place of a three-year-old headlamp does represent betterment, and the insurer is allowed to charge depreciation for the difference. But once the depreciation cut crosses the betterment, the insurer is making a profit on your loss, which the principle does not permit. That is the line consumer forums look for.
Will going to the consumer forum take years?
Not always. Many motor insurance disputes are decided within twelve to twenty-four months, particularly where the file is complete and the cuts are clearly undocumented. Insurers also frequently settle once a proper legal notice is sent, before the complaint is even fully argued, because the threat of interest and costs makes a quiet settlement attractive. The key is to act before signing the discharge voucher and to keep a tidy paper trail.
Can the consumer forum award interest on the balance?
Yes. Consumer forums regularly award simple interest at six to nine per cent per annum on the underpaid amount, calculated from the date the claim should have been settled. They also award the costs of the litigation. In serious cases where the insurer's conduct has been clearly arbitrary, the forum can add a compensation amount for mental harassment. The orders are enforceable like any civil decree.
Should I accept the partial amount or wait for the full settlement?
Take the partial amount if the garage is holding the vehicle and you need to pay them — but write 'under protest, balance disputed' on the discharge voucher before signing. That endorsement preserves your right to pursue the balance through the consumer forum. If you sign cleanly, the insurer will treat the matter as a 'full and final' settlement and the fight becomes much harder. Indian forums respect the 'under protest' endorsement.
Is the Insurance Ombudsman an alternative to the consumer forum?
Yes, and often a quicker one for moderate disputes. The Ombudsman scheme handles complaints up to a notified limit, decides without filing fee, and gives an award that the insurer is bound to comply with within a fixed timeline. For larger or more complex matters — or where you need detailed cross-examination of the surveyor — the consumer forum under the CP Act, 2019 remains the better forum. You can usually choose one route or the other, not both at the same time on the same dispute.
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