How does Depreciation Impact the Cost of Two-Wheeler Insurance?

Posted on: Mar 2, 2022 | | Written by:

How does Depreciation Impact the Cost of Two-Wheeler Insurance?

Published on March 4, 2022. EST READ TIME: 3 minutes

Does Depreciation impacts Two-wheeler Insurance Cost

The IDV of your motorcycle is an essential factor in calculating the premium you must pay to obtain the necessary coverage. Understanding the notion of insured stated value is critical for this. In layman's terms, the IDV is the maximum sum you may claim for if your car is totaled or stolen. IDV is calculated using the manufacturer's advertised selling value and then corrected for depreciation. Because of the depreciation component, the Insured Declared Value of your bike fluctuates at the moment of renewal. A new bike's insured stated value will vary from the Insured Declared Value of a 5 year-old bike.

To comprehend how IDV affects your two-wheeler insurance renewal premium, let's first look at how it's computed.

How is a bike's insured declared value determined?

The IDV of a bike is determined using the following equation:

The Insured Declared Value is calculated using the manufacturer's quoted selling value and then corrected for depreciation based on the bike's age. When determining the IDV, the registration and insurance expenses of the bike are not taken into account. If you wish to insure extras that are not parts of the main bike body, the IDV is computed separately and at an additional expense.

The IDV is inversely proportionate to the bike's age. The Insured Declared Value of the bike diminishes as it ages, impacting the renewal premium.

The depreciation schedule used in the computation of two-wheeler renewal premiums

When determining the IDV of your bike, the insurance provider uses the depreciation schedule. Many bike owners believe that they may choose a low Insured Declared Value to pay a lower premium, however, the value is not under their control and is entirely reliant on the insurance carrier.

Bike Age	Depreciation Rate
< 6 months	5%
6 months – 1 year	15%
1 – 2 years	20%
2 – 3 years	30%
3 – 4 years	40%
4 – 5 years	50%

Please note: In the event of a minor accident, if just a few components require to be changed rather than the entire two-wheeler, you will be reimbursed based on Insured Declared Value rather than the exact cost of the replaced parts. As a result, depreciation might have a negative influence on you and result in losses. Let's have a look at what we can do to avoid this.

Zero Depreciation Rider

When obtaining comprehensive two-wheeler insurance, you have the option of purchasing riders, which are optional coverage that may be added to your policy for a fee.

Zero Depreciation is a policy add-on or rider that is available as separate insurance coverage on comprehensive motor insurance and works as additional compensation to you should you get involved in an accident. At the time of claim, when your vehicle is damaged and needs to be repaired or replaced due to an accident, the Zero Depreciation guards your compensation amount against losses due to depreciation of the parts used for part replacement by the insurance company.

Things to consider while renewing your two-wheeler insurance

1. Examine the total premium figure to see if it was calculated appropriately based on your bike's Insured Declared Value.

2. To obtain the best value, always try to renew your two-wheeler insurance coverage online, since insurance providers offer online insurance coverage at a little reduced rate.

Conclusion

Depreciation and its impact on your two-wheeler insurance premium depend primarily upon the condition in which you are keeping your bike. A well-maintained bike with zero depreciation will have lower premiums than a poorly maintained bike with high depreciation. The rule of thumb, therefore, is to take care of your bike so that it retains its value over time. This will be advantageous not only for yourself but also for your insurer who would appreciate lower potential losses at the onset of a claim. Therefore, always keep some amount aside every month from your savings and use it to maintain your bike to avoid higher claims in the future (and thus lower premium amounts).

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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