Insurance glossary
Depreciation
Also known as: vehicle depreciation, value loss
Quick definition
The steady loss of a vehicle's value over time and mileage. It is central to insurance because a claim pays the car's depreciated value at the time of loss — not what you paid for it — which is why finance shortfalls and value-basis choices matter.
Understanding Depreciation
A new car loses value fastest in its first two to three years, then more gradually. Insurance follows that curve: the sum insured should track the falling market value, so a comprehensive claim pays what the car is worth on the day of the loss, not its original price. Insuring at a stale, too-high figure wastes premium; insuring too low risks under-settlement.
Depreciation is the engine behind the credit shortfall problem. Because a financed car can lose value faster than the loan reduces in the early years, a write-off payout based on depreciated value can fall short of the outstanding finance — the gap that credit shortfall cover exists to close.
Two value bases push back against depreciation for specific cars: retail value (the most generous standard basis) and agreed value (a fixed sum for classics and collectibles the trade guides price poorly). For an ordinary car, the discipline is simply to review the sum insured at each renewal so it stays honest as the car ages.
Related terms
Definitions reviewed by the OneCompare editorial team. OneCompare (Pty) Ltd is an Authorised Financial Services Provider (FSP 55551).
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