There are many components of your insurance policy that may seem difficult to understand at first. One such aspect of two-wheeler insurance is the relation between the insured declared value or IDV and the rate of depreciation. Knowing these components of your bike insurance will help you modify the policy and better communicate your needs to your insurance provider. Read on to educate yourself on different aspects of IDV and depreciation and become an aware policyholder.
What is Depreciation in a Two-Wheeler?
Depreciation is the decrease in the value of an asset over time. Depreciation refers to the loss in the value of your bike due to regular wear and tear over time. In the context of two-wheeler insurance, it helps the insurer determine your bike's current market worth. Like all machines, Two-wheelers undergo wear and tear during their lifetime, which reduces their market value over time. For insured two-wheelers, policy providers offer a complete list of depreciation rates (as per the Indian Motor Tariff) for different stages during the two-wheeler’s lifetime.
In simple terms, depreciation is the key factor that assists in determining Insured Declared Value (IDV) while also assisting in determining the policy premium.
What is IDV?
IDV plays a key role in chalking out the maximum sum assured in case of theft or damage to your two-wheeler. The maximum value payable by the insurer in case of an accident, theft or damage of a two-wheeler is called the Insured Declared Value or IDV. Simply put, IDV is the current market value of your two-wheeler. If your two-wheeler meets with an accident, then you will be given the IDV as compensation by the two-wheeler insurance company. This compensation gets reduced as the age of your two-wheeler increases. The premium you pay for your vehicle insurance is directly proportional to the IDV.
How is IDV Calculated?
A very important point to remember here is that IDV is not calculated on the price you have paid for purchasing the vehicle. Instead, it is calculated considering the market value of the two-wheeler on the commencement of the policy. This value varies largely with time.
Ideally, you should get your vehicle insured within six months of the purchase to get the maximum IDV. The older your vehicle, the lesser will be the IDV and the premium.
Scroll down to understand the insured declared value (IDV) calculation through a formula.
Insured declared value (IDV) = {Bike's current market value - depreciation costs} + {Accessories cost - depreciation value of accessories}
To fully comprehend the insured declared value (IDV), you must first understand the influence of depreciation in percentage on the age of a two-wheeler.
What Factors Affect the IDV of a Bike?
Several factors influence the IDV of a two-wheeler:
- Age of the Vehicle: Older bikes have higher depreciation, leading to a lower IDV.
- Make and Model: Premium models may retain value longer than standard models, hence a higher IDV.
- City of Registration: Market values can vary based on location.
- Accessories: Additional fittings can increase the IDV if they are insured.
Is IDV Directly Related to the Premium Rate of Bike Insurance Plans?
Yes, IDV directly impacts the premium of two-wheeler insurance. A higher IDV results in a higher premium since the insurer's liability increases. Conversely, a lower IDV reduces the premium but may lead to inadequate coverage. It's essential to balance between sufficient coverage and affordable premiums.
How Depreciation Affects the IDV of Two-Wheeler Insurance
Depreciation results in the reduction of the IDV of a two-wheeler. Ideally, it is adjusted on the vehicle’s selling price listed by the manufacturer. If a vehicle is not more than six months old, the deprecation value is 5%. This goes up periodically and reaches a value of 50% of the market price in 4-5 years. If the two-wheeler is more than five years old, the insured declared value (IDV) is calculated by an agreement between the insurance company and the policyholder. While insuring your two-wheeler, the right amount of IDV is the first step towards ensuring an infallible financial backup. So, get your ride insured and ride without the fear of any financial roadblocks.
Depreciation Rates for Your Bike
As per the Indian Motor Tariff Act, the depreciation on the bike will be such:
|
Vehicle’s lifetime
|
Percentage of depreciation
|
|
Less than six months
|
5%
|
|
Exceeding six months but less than a year
|
15%
|
|
Exceeding one year but less than two years
|
20%
|
|
Exceeding two years but less than three years
|
30%
|
|
Exceeding three years but less than four years
|
40%
|
|
Exceeding four years but less than five years
|
50%
|
FAQs
- Why is it important to choose the correct IDV?
Choosing the right IDV ensures you get the maximum price for your vehicle in case of an accident.
- How to check the IDV of my vehicle?
You can calculate the IDV of your bike by finding its market value and subtracting the depreciation from that price. Additionally, you can use online calculators to do so.
- Can I choose a higher IDV than the market value?
While you can opt for a higher IDV, it will increase your premium. However, insurers may not accept an IDV significantly higher than the market value.
- How often should I review my bike's IDV?
It's advisable to review and adjust the IDV at each policy renewal to reflect the current market value accurately.
- Does IDV affect third-party liability premiums?
No, IDV impacts only the damage component of the premium. Third-party liability premiums are fixed by the regulatory authority and are independent of the vehicle's IDV.
- What happens if I understate my bike's IDV?
Understating the IDV can lower your premium but may result in insufficient compensation in case of total loss or theft.
- Is IDV applicable for add-on covers?
Yes, certain add-ons like zero depreciation cover can influence the effective IDV by covering depreciation costs during claims.
Conclusion
Understanding the connection between IDV and depreciation is important for bike owners. It helps you choose the best two-wheeler insurance and balance premium costs over time. It is advisable to consult your insurance provider periodically and adjust the insured declared value according to your bike’s age and condition to make the most of your insurance policy.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It may contain outdated data and information regarding the topic featured in the article. It is advised to verify the currency and relevance of the data and information before taking any major steps. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.