Understanding Depreciation and Its Impact on Your Two-Wheeler Insurance

Once you have bought a two-wheeler, the first step after registering your vehicle is buying an insurance cover. There are several factors that impact your premium. Wil any factors influencing the premium at once, it might seem intimidating at first. But in fact, buying a 2 wheeler insurance policy is simple once you understand some key elements. One such critical element that impacts the premium is depreciation. So, if you are looking to sell your bike or buy a pre-owned one, these are some of the aspects that to know about depreciation.

For starters, let us understand: what is depreciation?

Depreciation for a layman is the decrease in the value of an asset over time. While riding a bike undergoes routine wear and tear of its components, it contributes to the reduction of its value. The Indian Motor Tariff has prescribed depreciation rates for different stages in the two-wheeler’s lifetime. This is denoted by the IDV. In simple terms, Insured declared value or IDV is the approximate value of your two-wheeler as determined by the insurance company. It is the maximum amount that your insurance company compensates during an accident or total loss.

Next, how does depreciation impact the premium?

The depreciation and the premium are inversely related. Since IDV is the maximum amount that your insurance company will pay, higher the IDV, higher will be your insurance premium. But as your IDV depreciates, it consequently reduces the amount of premium too. So, a higher depreciation of IDV implies lower insurance premium. This in turn has the effect of lower insurance claim payouts too. The table below explains how depreciation is calculated to arrive at the IDV for your two-wheeler:


Age of the vehicle Depreciation for the purpose of IDV
Not more than 6 months 5%
More 6 months but not more than 1 year 15%
More 1 year but not more than 2 years 20%
More 2 years but not more than 3 years 30%
More 3 years but not more than 4 years 40%
More 4 years but not more than 5 years 50%

Apart from above, the vehicle whose age is more than 5 years or models that are discontinued by the manufacturer, the IDV is determined mutually by the insurer and you, the policyholder.

Understanding the IDV better

You need to remember that IDV shall only be paid as compensation in the event your bike faces a total loss or is damaged beyond repair. In other cases, the compensation is restricted to the amount of cost of repairs reduced by the depreciation. Also, IDV is not calculated on the purchase price of the bike, but instead on its current market valuation. Often individuals compromise by selecting a lower IDV which results in a loss during compensation. Hence, it is recommended you do not skimp your IDV and declare the appropriate IDV only.

A two wheeler insurance premium calculator can help you to set the appropriate IDV for your bike depending on your insurance budget. Further, any add-ons can also be selected that enhance your policy coverage. Now that you know how depreciation impacts your premium, set the right IDV and enjoy adequate insurance coverage for your bike.

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