Depreciation in motor insurance refers to what?

• A. Is the percentage of the cost of replaced parts which the insured bears
• B. Is the rate at which premiums increase
• C. Is the interest rate on loan
• D. Is the discount at renewal

Answer: (A)

In motor insurance, depreciation is the loss in value that a part has due to wear and tear since it was new. When a claim involves replacing parts, many policies apply depreciation to the replacement cost, so the insurer pays the replacement cost minus depreciation and the insured covers that depreciation amount. So the correct description is that depreciation is the portion of the cost of replaced parts which the insured bears. This concept isn’t about how premiums rise, loan interest, or renewal discounts, which are different topics.