IDV in Bike Insurance

Introduction

Two-wheelers have become one of the most popular modes of transport in the country. They are not only affordable but also easy to navigate through narrow lanes and busy roads. However, if you own a bike, it is essential to secure your vehicle with a two-wheeler insurance policy – not only for peace of mind but also to comply with the legal requirements. According to the Motor Vehicles Act of 1988, two-wheeler owners must insure their vehicles before taking them on the road. When it comes to bike insurance, one key term you need to understand is IDV or Insured Declared Value. So, what exactly is IDV in bike insurance and why is it important while purchasing a two-wheeler insurance? Let’s dive into the details.

What Is IDV in two wheeler insurance?

IDV, or Insured Declared Value, is an important term in bike or two-wheeler insurance. It refers to the maximum amount the insurance company will pay in case your bike is stolen or suffers total damage in an accident.

The following are some points to keep in mind:

• Typically, IDV in bike insurance represents the current market value of the two-wheeler.
• The current market value for a bike is its cost price minus depreciation.
• The older the bike, the higher the depreciation percentage.

Here's an example:

Suppose you buy a new bike for INR 80,000, excluding the registration cost, road tax, etc. At the time of purchase, the IDV of your bike is INR 80,000. However, as the bike ages, its market value depreciates, and so does the IDV. If the market value of your bike reduces to INR 60,000 after one year, the IDV will also be adjusted to INR 60,000.

So, if your bike gets stolen or is completely damaged in an accident after one year of purchase, the insurer will compensate you with the current market value (IDV), which in this case would be INR 60,000.

How to calculate IDV of bike

The IDV in bike insurance is calculated based on the current market value of the two-wheeler. This includes the bike’s deprecation and any other factors that may affect its value, such as accessories, modifications, usage, and the bike’s condition.

Here are some points to remember while calculating IDV in bike insurance -

• Insurance companies calculate the IDV of a bike at the beginning of the policy term or during policy renewal. The same is then adjusted with depreciation.
• Many insurance providers have an online calculator that can help you determine the market value of your bike as well as the premium for bike insurance.
• If you have added accessories to your bike and want to insure them, the insurer will calculate their IDV in bike insurance separately. However, you must inform the insurer about the same on time.

The IDV of a bike without accessories is calculated as follows:

IDV = MRP of the bike – Depreciation Value

Here’s an example:

• Bike MRP = INR 60,000

• Depreciation after 2 years is 20%

Therefore, the IDV will be INR 60,000 – 20% of INR 60,000 = INR 48,000

The IDV of a bike with new or added accessories is calculated as follows:

IDV = (MRP of the bike – Depreciation value) + (Price of the added accessories – depreciation value of the added accessories)

Here, it is important to note that the depreciation value of the added accessories is usually higher than the bike’s depreciation because accessories tend to lose their value more quickly. Moreover, the depreciation rate for accessories depends on the type of accessories and their condition. Therefore, the rates may differ accordingly.

Let’s understand this with an example:

• Bike MRP = INR 60,000

• Bike Age = 2 years (20% depreciation)

• MRP of new accessories = INR 10,000

• Depreciation rate of the accessories = 30% for 2 years

Therefore, the IDV of the bike after depreciation will be:

INR 60,000 – 20% of INR 60,000 = INR 48,000

Depreciation on accessories = 30% of INR 10,000 = INR 3,000

Value of accessories after depreciation = INR 10,000 – INR 3,000 = INR 7,000

Therefore, the total IDV of the bike with accessories will be = 48,000 + 7,000 = INR 55,000

Two wheeler IDV: Rates of depreciation

Depreciation is a common and important term used while calculating bike insurance premium amount as well as the IDV of a two-wheeler. It is calculated based on a fixed percentage that depends on the bike’s age.

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:

Impact of IDV on two wheeler insurance premium

The IDV or Insured Declared Value plays a crucial role in determining your two-wheeler insurance premium. Here’s how it affects your policy:

• Higher IDV = Higher premium

  A higher IDV in bike insurance means that the insurer will have to pay a larger amount to the insured in case of a claim. Since this increases the financial liabilities of the insurer, they charge higher premiums to reduce their risk.

• Lower IDV = Lower premium, but reduced compensation

  While a lower IDV in bike insurance reduces two-wheeler insurance premiums, it also means you will receive less compensation in case of theft or total damage. This will increase your financial liabilities, especially if the bike’s current market value is higher than the IDV.

For example, the MRP of your bike is INR 60,000, and its IDV is INR 40,000. After 1 year, the value will depreciate by 15%, and the IDV will be INR 34,000. In case of total loss or damage after 1 year, your payout will be around INR 34,000 or less, which may not be enough to replace your bike.

The IDV in bike insurance is calculated based on factors such as the bike’s make, model, age and depreciation. Therefore, by understanding how IDV affects policy premiums, you can strike the right balance between adequate coverage and affordable premiums. This will ensure both your bike and finances are well-protected.

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.

Factors affecting the insured declared value (IDV) of a bike

The following are some important factors that affect the IDV of a bike -

• Brand and model:

  A bike’s brand and model play a significant role in determining its IDV in bike insurance. Premium and high-end bikes have a higher IDV due to their market value. Additionally, newer and advanced bikes may also have a higher IDV as their replacement value is higher.

• Age of the bike:

  Age is an important factor in calculating the IDV of a two-wheeler. The value of bikes depreciates over time, so the older the bike, the lower its IDV. Typically, bikes lose around 5% of their value in the first 6 months and 20% after 1 year. Therefore, the IDV in bike insurance will be calculated accordingly.

• Registration date:

  The registration date of a bike plays an important role in determining its Insured Declared Value (IDV). A bike’s IDV depends on its age, and this is directly linked to the registration date. Therefore, a newly registered bike will have a higher IDV, while a bike registered more than 5 years ago will have a lower IDV because of its increased risk of wear and tear.

• Geographical location:

  The town or city where the bike is registered or primarily used will also impact its IDV in bike insurance. For example, if you reside in a city where the demand for bikes is higher and the market value is higher, the IDV will also be higher.

• Bike’s condition:

  The condition of a bike, including factors like maintenance, mileage, and wear and tear, can influence the IDV. A well-maintained bike with low mileage will have a higher IDV in bike insurance when compared to a poorly maintained one.

• Accessories and modifications:

  If your bike has accessories and modifications, its IDV in bike insurance will increase accordingly. However, the insurance coverage for accessories is often treated separately, and their depreciation percentage is higher than that of the bike. Also, the insurer will include accessories only if you declare them at the time of policy purchase.

• Policy type and tenure:

  The type of bike insurance you opt for can also influence the IDV. While comprehensive policies have higher IDVs, third-party bike insurance policies do not consider the IDV of a bike when calculating the premium or coverage.

Moreover, if you choose add-ons like zero depreciation cover for your bike, the IDV in bike insurance may still remain higher even after depreciation, as this add-on reduces the effect of wear and tear.

Significance of IDV in bike insurance

The significance of IDV in bike insurance is as follows -

• Determines the compensation amount: The IDV in bike insurance represents the current market value of your bike. Therefore, it helps determine the compensation amount or the maximum sum the insurer will pay if your bike gets stolen or damaged beyond repair.
• Influences policy premiums: The IDV in bike insurance directly affects policy premiums. If the IDV of your bike is higher, the insurer will charge higher premiums to reduce their financial liabilities in case of a claim.
• Helps in claim settlement: The IDV in bike insurance helps determine the claim settlement amount, ensuring that the insurance payout is fair and adequate for bike repair or replacement.
• Prevents financial setbacks: The Insured Declared Value of a bike ensures a balance between adequate coverage and affordable premiums. It reflects the bike’s value accurately, thereby preventing financial setbacks for both the insurer and the insured during claims.

Consequences of choosing the wrong IDV in bike insurance

Choosing the wrong IDV in bike insurance can result in the following significant consequences -

• Underinsurance: Choosing a lower IDV for your bike can have the following consequences -
  • Reduced compensation: The compensation you receive in case of theft or total loss depends on the IDV of your bike. Therefore, a low IDV may be insufficient to replace your bike at its current market price. In this case, you will have to pay the difference amount from your pocket, and this can lead to financial strain.
  • Inadequate coverage: Although a low IDV in bike insurance helps reduce policy premiums, the payout may not be adequate for covering bike repair and replacement bills. This will increase your financial risk in the event of a major incident.
• Over-insurance: If you choose a higher IDV for your bike, you may have to face the following consequences -
  • Higher premiums: If the IDV in bike insurance is high, the insurer will charge a higher premium as they are at a higher financial risk in case of a claim. This will increase your financial liabilities.
  • Overpaying for coverage: If the IDV is set higher than the actual market value of the bike, you may end up overpaying for your policy. However, in the event of a claim, the insurer will consider and compensate up to the actual market value or the depreciated value of your bike, not the inflated IDV. Thus, the excess premium paid for the higher IDV will ultimately go to waste.

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 in bike insurance 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 in bike insurance 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.