What is depreciation?
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 the insured declared value (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 do we calculate the insured declared value (IDV)?
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.
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%
|
If your two-wheeler is five years old or more, you would still get the IDV amount, depending on the condition of your two-wheeler’s body parts and its serviceability. Even if your two-wheeler is an obsolete model, you will still be able to get its IDV value through a mutual agreement with your general insurance company. You can also use an IDV calculator to calculate your bike's insured declared value.
Depreciation in IDV rates
Ideally, depreciation 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.