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Understand Depreciation Value & IDV of Your Two Wheeler

  • Author :
  • TATA AIG Team
  • Published on :
  • 26/05/2022

You may have encountered the term "IDV" or Insured Declared Value in insurance. But what exactly is IDV, and why is it crucial in bike insurance?

IDV stands for Insured Declared Value, which represents the maximum sum assured that an insurance company will provide in case of a total loss or theft of your bike. In simpler terms, it is the approximate current market value of your two-wheeler, considering its age, depreciation, and model.

Understanding the concept of IDV is essential as it directly impacts your long-term two-wheeler insurance premium and the claim settlement process. A higher IDV implies a higher premium but also ensures a better financial safeguard in case of a mishap. On the other hand, a lower IDV may lead to inadequate coverage during unfortunate events.

In this blog, we will go deeper into the significance of IDV in insurance for bikes, discuss how it is calculated, and explore the factors that influence it.

So, let's unravel the mysteries behind IDV to make informed decisions about your bike insurance policy.

What is IDV?

In the context of bike insurance, IDV full form in insurance is Insured Declared Value. It refers to the maximum amount an insurance company will compensate you in case of a total loss or theft of your bike. It represents the approximate current market value of your two-wheeler after factoring in depreciation.

To illustrate this with an example, let's consider a scenario where you purchased a new bike for ₹80,000. After a year, due to depreciation, its value would have decreased. Let's assume the depreciation rate is 15% per annum. In this case, the IDV value of bike after one year would be ₹68,000.

The IDV is critical in determining the premium you pay for your bike insurance in India. A higher IDV implies a higher premium but also ensures better financial coverage in case of any unfortunate incidents. It is essential to accurately assess the IDV to ensure adequate insurance coverage for your bike, considering its market value and depreciation.

What is the Meaning of Depreciation in a Two-wheeler?

Depreciation in a two-wheeler refers to the reduction in its value over time due to factors like wear and tear, ageing, and market dynamics. As a two-wheeler is used, its condition deteriorates, and new models with advanced features are introduced, causing a decline in its market value.

For example, let's consider a brand-new two-wheeler purchased for ₹1,00,000. After a year of usage, its value might decrease due to factors like mileage, cosmetic wear, and the introduction of newer models. Let's assume the bike's value decreases by 10%. In this case, the depreciation amount would be ₹10,000, and the bike's market value after one year would be ₹90,000.

Depreciation is a significant factor in determining the Insured Declared Value (IDV) in bike insurance, as it represents the approximate current market value of the two-wheeler.

How is IDV Calculated

To calculate the IDV, the depreciation percentage is applied to the bike's original purchase price or the previous year's IDV. The resulting value represents the current market value of the bike and serves as the basis for determining the insurance coverage amount. You can use an online IDV calculator for bike to calculate the same.

And now that you know what bike insurance IDV means, here's a tabular format explaining the depreciation percentage deducted to calculate the IDV in bike insurance:

Age of Bike Depreciation Percentage
Less than 6 months 0.05
6 months to 1 year 0.15
1 to 2 years 0.2
2 to 3 years 0.3
3 to 4 years 0.4
4 to 5 years 0.5
More than 5 years Varies (subject to negotiation)

What Factors Affect the IDV of a Bike?

Several factors influence the IDV in bike insurance policies. These factors are taken into account by insurance companies to determine the approximate current market value of the bike.

Here are the key factors that affect the IDV:

**Age of the Bike: As a bike ages, its value depreciates. Older bikes generally have a lower IDV compared to newer ones.

**Depreciation Rate: Insurance companies apply depreciation rates to calculate the reduction in the bike's value each year. Higher depreciation rates result in a lower IDV.

**Model and Make: The bike's brand, model, and make influence its market value. Premium or luxury bike models may have a higher IDV than economy models.

**Accessories and Modifications: Additional accessories or modifications can enhance the bike's value. The IDV may be adjusted accordingly to include the value of these additions.

**Market Conditions: Market demand, spare parts availability, and bike market fluctuations can impact the IDV.

**Geographical Location: The location where the bike is registered or primarily used can affect its value. Regional demand, climate, and theft rates can influence the IDV.

Is IDV Directly Related to the Premium Rate of Bike Insurance Plans?

The bike IDV value is closely related to the premium you pay for bike insurance. The IDV is the maximum amount an insurance company will compensate you in case of a total loss or theft of your bike. It represents the approximate current market value of the bike, taking into account factors like depreciation, age, and model.

Let's explore how IDV in two-wheeler insurance impacts the insurance premium with an example.

Suppose you have a bike with an original purchase price of ₹1,00,000. After a year of usage, the IDV of the bike might be calculated at ₹90,000, considering a depreciation rate of 10%. Now, let's consider two scenarios with different IDVs and their impact on the insurance premium**

Scenario 1 Higher IDV

Assume the IDV for your bike is set at ₹90,000. A higher IDV implies that the insurance company will provide a higher compensation in case of a total loss or theft. However, a higher IDV also leads to a higher insurance premium. For example, if the premium for this IDV is calculated at 10% of the IDV, you would pay ₹9,000 as the premium.

Scenario 2 Lower IDV

Consider a lower IDV of ₹80,000 for the same bike. A lower IDV means that the insurance company's compensation will be lower in case of a total loss or theft. However, a lower IDV results in a lower insurance premium. If the premium is calculated at the same rate of 10% of the IDV, the premium amount would be ₹8,000.

From the above scenarios, it's evident that the IDV directly influences the insurance premium. A higher IDV leads to a higher premium, as the insurance company needs to provide greater compensation. On the other hand, a lower IDV reduces the premium, as the potential compensation is lower.

It's important to strike a balance while determining the IDV and the corresponding insurance premium. Opting for a higher IDV ensures better financial coverage in case of a total loss or theft, but it results in a higher premium.

Conversely, choosing a lower IDV reduces the premium but may lead to inadequate coverage. It's crucial to assess your bike's value accurately and select an IDV that offers comprehensive coverage while also considering your budget for insurance premiums.

Insurance companies use various factors to calculate the premium, including the IDV, bike model, location, age, and the owner's profile.

Glossary of a Few More Bike Insurance-related Terminologies You Must Be Aware Of

It is not difficult to understand the meaning of complicated jargon related to a two-wheeler insurance policy. Understanding these bike insurance terminologies is essential to make informed decisions while selecting the right coverage options and add-ons that suit your needs and provide comprehensive protection for your two-wheeler.

Zero Depreciation Cover Zero depreciation cover, also known as a nil depreciation or bumper-to-bumper cover, is an add-on feature in bike insurance that provides comprehensive coverage without factoring in the depreciation of bike parts during a claim. With this cover, you can claim the full cost of repairs or replacement of parts without any deduction for depreciation.

No Claim Bonus (NCB) Insurance companies reward policyholders for not making any claims during the policy term. It is a discount provided on the premium at the time of policy renewal. The NCB percentage increases with each claim-free year and can significantly reduce the insurance premium.

Personal Accident Cover It provides financial protection to the policyholder in case of accidental death, permanent disability, or bodily injuries caused by accidents involving the insured bike. It offers a fixed sum insured to the policyholder or their nominees, ensuring financial security during unfortunate events.

Owner-Driver Cover It is a mandatory component of bike insurance in India. It provides personal accident coverage to the owner of the insured bike while driving. It protects the owner-driver against accidental death, permanent disability, or bodily injuries caused by bike accidents.

Add-On Cover These covers are additional benefits that can be purchased along with the standard bike insurance policy by paying an extra premium. These covers enhance the coverage and offer additional protection for specific risks or damages, such as engine protection, consumable expenses, key replacement, etc.

Roadside Assistance A valuable add-on cover provides emergency assistance services to the insured bike in case of breakdowns or emergencies. It may include services like towing, battery jump-start, fuel delivery, flat tire assistance, and a mechanic or alternative transportation arrangement.

First, and Third-Party Insurance In the context of bike insurance, these terms refer to the types of coverage provided**

First-party insurance (own damage cover) protects the insured bike against damages caused by accidents, theft, fire, natural calamities, etc. It is often known as a standalone own-damage cover.

Third-party insurance is mandatory by law and covers the insured's liability towards third-party property damage or bodily injury caused by the insured bike.

To Sum it Up

Understanding what Insured Declared Value or IDV means in bike insurance is crucial for bike owners when choosing the right insurance policy. The IDV represents the approximate current market value of the bike and plays a significant role in determining the insurance premium and claim settlement.

Age, depreciation, model, and market conditions affect the IDV. By accurately assessing the IDV, bike owners can ensure adequate coverage and make informed decisions about their insurance policies.

Now, if you are looking for a reliable bike insurance plan, Tata AIG offers comprehensive coverage and benefits that cater to the needs of every bike owner in the country. With a wide range of plans, including zero depreciation cover, personal accident cover, and add-on covers, Tata AIG ensures maximum protection and peace of mind.

So, when are you safeguarding your beloved two-wheeler with a robust insurance plan from Tata AIG?

Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

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