Buying a two-wheeler insurance policy is often regarded as a confusing choice. Several factors are responsible for determining the price you pay, i.e., the premium of your policy. However, depreciation is one of the important considerations that you must keep in mind. It plays a pivotal role in deciding your insurance premium. Here’s all you need to know about how the depreciation on your two-wheeler impacts its insurance cover.
What is Depreciation in Two-wheelers?
A reduction in the value of an asset over time is called depreciation. While it is commonly heard regarding plants and machinery, vehicles are also subjected to the same. When you ride your bike, the components undergo wear and tear, in effect impacting its value. Thus, the depreciation signifies the loss of value of your vehicle.
How Does Depreciation Impact the Bike Insurance Price?
Two wheeler insurance premiums are decided based on various factors like the age of the vehicle, the manufacturer and its model, different policy features opted for, and its insured declared value or IDV. While the other factors remain the same, its IDV is what changes due to depreciation. Thus, as your two-wheeler gets old, the depreciation is what lowers the IDV.
IDV is the maximum compensation that the insurance company pays to the policyholder in the event of unfortunate damage which cannot be repaired. It is also known as a total loss or constructive total loss. Since IDV is the maximum compensation paid by the insurance company, it directly impacts its
bike insurance price.
*Standard T&C Apply
The regulator, the Insurance Regulatory and Development Authority of India (IRDAI), prescribes standardized rates of depreciation for arriving at its IDV. You can visit the official website of IRDAI for further details. This is mentioned under General Regulation 8 (G.R 8) of the Indian Motor Tariff. Here are the depreciation rates as follows:
| Age of the Bike |
Depreciation Rate for Calculating IDV |
| Not exceeding 6 months |
5% |
| More than 6 months but not exceeding 1 year |
15% |
| More than 1 year but not exceeding 2 years |
20% |
| More than 2 years but not exceeding 3 years |
30% |
| More than 3 years but not exceeding 4 years |
40% |
| More than 4 years but not exceeding 5 years |
50% |
*Standard T&C Apply
While these rates are prescribed by the regulator, as a policyholder, you need not calculate whenever buying or renewing a bike insurance policy. You can make use of a
two wheeler insurance premium calculator. This nifty tool is available for free and shows how much premium you need to pay considering the depreciation that impacts the IDV of your two-wheeler.
Depreciation in your bike insurance policy also lowers the payout in the event of a claim. While comprehensive plans allow you to alter the IDV, it isn’t advisable to increase or decrease it as it impacts directly your premium.
*Standard T&C Apply
Is There a Way to Overcome the Limitations Brought About by Depreciation?
Yes, a zero-depreciation add-on in a comprehensive two-wheeler policy is an effective way by which you can overcome these limitations. This add-on rider helps to nullify the effect of depreciation at the time of insurance claim, resulting in a higher insurance payout.
To conclude, depreciation has a significant impact on the price of your two-wheeler policy. The premiums go lower as the depreciation increases due to the lowering of IDV. However, it can be negative for you as a policyholder, as you would be required to bear a financial loss. Instead, you can choose to increase your policy’s coverage using a zero-depreciation cover. *
*Standard T&C Apply
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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