IDV in Bike Insurance

What Is IDV in two wheeler insurance?

Insured Declared Value, or IDV for short, is the maximum amount for which your bike can be insured. This is the sum insured payable in case of the total loss of the two wheeler or an unrecoverable theft. In other words, Insured Declared Value is the current market price of your bike.

Remember that the value of your two wheeler starts depreciating from the moment you buy it. If the listed price at the time of purchase was ₹1 lakh, the IDV would be 5% less for the first 6 months you own the bike. That is to say, if your bike is stolen on the very first day after you insure it the maximum amount that you can claim would be ₹95,000 and not the whole ₹1 lakh.

It is generally agreed that the life of a two wheeler is 5 years. Therefore, the total price of the bike is depreciated over 5 years. The depreciation is lowest at the onset and increases with each passing year. You would see the same reflected in the second-hand two wheeler market as well.

If you need to insure a bike older than five years, the IDV is agreed upon based on mutual discussion between the insurer and the insured. This is because the depreciated value is not only the scrap value of the two wheeler components.

Significance Importance of IDV

As stated earlier, IDV is the maximum amount for which the insurer is liable in case of your bike being stolen, or in case of a total loss. Total loss simply means that the expenses that would be incurred to restore the two wheeler to a road-ready condition are significantly high compared to the value of the two wheeler. Typically, the insurer would write the bike off as a total loss if the cost of repair is higher than 75% of the IDV.

While the exact IDV of the bike is determined based on the formula provided by the IRDAI, you would get a leeway to change it by 15% in either direction. The higher the IDV, the higher would be the premium you will have to pay. If the higher IDV was mutually agreed upon between the insurer and the insured, you would get the higher amount as compensation in case of a total loss/theft. That said, you should not increase the IDV unreasonably as then you would be paying an additional premium for no additional value.

You should not revise the IDV down just to lower the premiums. For one, this would mean you will not get enough compensation in case of a theft or total loss and will have to shell out a higher amount from your pocket to get a replacement. Additionally, if the insurer determines that the IDV is but a fraction of the bike’s value all the claims will be honoured in the same proportions. For example, if you set the IDV as ₹75,000 even when the formula determines it to be ₹1 lakh. All your claims would be honoured only up to 75%, and you will have to pay the remaining 25% out of pocket, even though the expense is covered by your two wheeler insurance policy.

Calculation of IDV

The IDV of a two wheeler is calculated based on its listed selling price at the time when the vehicle was first purchased and the time elapsed since then. The amount to be depreciated is determined based on a schedule provided by the IRDAI. The current schedule of depreciation is provided below:

For bikes older than 5 years, the IDV is mutually agreed upon between the two parties.

Impact of IDV on two wheeler insurance premium

The IDV of your two wheeler has a direct impact on the two wheeler insurance premium you have to pay. As it is the highest amount an insurer will have to pay, a lower IDV translates to a lower liability for the insurer, hence letting them charge a lower two wheeler insurance premium.

That said, an unreasonably low IDV can prove costly in case you have to make a claim for it. This is because IDV is considered when honouring claims, and not the actual market value of the bike. So, a lower IDV would result in a lower payout, forcing you to spend much more out of pocket to get a replacement bike.

Two Wheeler IDV: Rates of Depreciation

The rates of depreciation for two wheelers are determined by the IRDAI. They are periodically revised based on the market condition. The current schedule of depreciation for two wheelers is:

IDV Value for Two Wheeler's Aged Five Years and Above

If your bike is older than five years, or from a model that has been discontinued, the insured declared value is determined through a mutual agreement between the insurer and you. In case you have had a continuous cover for last five years, the insurer cannot refuse to renew your two wheeler insurance policy. Nevertheless, most of the add-on covers may not be available beyond five years. This includes the zero-depreciation cover, engine and gearbox cover, return to invoice cover etc.

Further, some insurers may load the premium in case of an older bike as it is likely to breakdown sooner than later. This may sometimes price it out for a few two wheeler owners. It is best to compare the available offers to determine the best two wheeler insurance cover. That said, the third-party bike insurance premium remains the same as mandated by law. Therefore, many old bikes are only covered by a third party two wheeler insurance cover and a personal accident cover, but not an own damage cover.

IDV During Policy Renewal

At the time of renewal, most insurers determine the IDV by simply reducing the previous IDV in line with the depreciation schedule provided by the IRDAI. This does not mean you should agree to the change proposed by the insurer. You should compare the new IDV to the market price of your two wheeler. You should also see if the own damage premium charged by the insurer has been reduced accordingly.

If you find that IDV is too low/too high compared to the market value of your bike, you should ask the insurer to revise the IDV accordingly. As stated earlier, you have a window of plus or minus 15% within which most insurers allow you to choose the IDV. Similarly, if you think the premium charged is high compared to the IDV negotiate the same with the insurer or look at premiums charged by other insurers for a similar bike insurance cover.

It is important to remember that the IDV only impacts the own damage premium. The premium for the third-party two wheeler insurance depends on your bike's cubic capacity and is fixed by IRDAI. Similarly, the premium for personal accident cover is independent of the two wheeler’s market value.