How Depreciation Can Affect Your Two-Wheeler Insurance Policy?

Anne E. Evans
How Depreciation Impacts Two Wheeler Insurance Premium

Insurance is a critical compliance that needs to be followed after registering your two-wheeler. When buying an insurance plan, there isn’t any one factor that determines its premium, but many factors contribute to it. However, insurance purchase is often regarded as a perplexing decision. But understanding a few terms can help you make a prudent choice of bike insurance policy. Among these terms is depreciation. Here’s what you must know about depreciation if you are looking to buy a used bike or sell one and its impact on the insurance policy.

To start with, what is depreciation?

The decrease in the value of an asset over time, whether being used or not, is called as depreciation. Motor vehicles aren’t the only ones that are affected by it, but in fact, all assets are subjected to depreciation. When you ride a bike, the components undergo routine wear and tear thereby impacting its value. The Indian Motor Tariff has prescribed certain rates of depreciation based on the age of the two-wheeler. The resultant value after accounting for depreciation is termed as Insured Declared Value or IDV. To simplify, IDV is the approximate value of your two-wheeler as determined by your insurance company. Also, it is the maximum amount that the insurance company compensates in the event of an accident resulting in total loss or damage beyond repair. * Standard T&C Apply

Does the depreciation impact the premium?

Yes, depreciation has an inverse relation with the insurance premiums. However, the IDV shares a direct relationship with the premium. Since a higher IDV means the insurer must assume a higher risk, it increases the premium. But as the depreciation increases, it results in a lower insured declared value. Thus, in effect, the higher the depreciation, the lower is the insurance premium. But a lower IDV negatively affects the insurance pay-out. The table below explains how to calculate depreciation and its consequent IDV to determine the bike insurance price:

Age of the vehicleDepreciation for the purpose of IDV
Not more than 6 months5%
More 6 months but not more than 1 year15%
More 1 year but not more than 2 years20%
More 2 years but not more than 3 years30%
More 3 years but not more than 4 years40%
More 4 years but not more than 5 years50%

For vehicles whose age is more than 5 years or models that are discontinued by the manufacturer, the insured declared value is determined mutually by the insurer and you. 

Understanding the IDV better

When you consider depreciation and its effects on the IDV of your insurance policy, you must remember that such amount is only paid in the event your bike is damaged beyond repair. In all other cases, the compensation is limited to the actual cost of repairs and further lowered by the applicable depreciation rates. Also, the IDV isn’t calculated based on the purchase price of the vehicle, but instead on the current market valuation. Buyers often skimp on the IDV to lower their premiums, but it is advised you do not do it as it results in a lower coverage. With the help of a two wheeler insurance premium calculator, you can appropriately decide the IDV for your vehicle accounting for the depreciation and its effects. Also, a zero-depreciation add-on can help you bypass the effects of depreciation on the insurance coverage of your policy. * Standard T&C Apply

Please note that insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.

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