In the bustling lanes and wide highways of India with poor public transport access, motorbikes stand as symbols of freedom, convenience, and economic mobility. For many, a motorbike is not just a mode of transport but a trusted companion in the daily hustle.
Given the deep connection and significant investment made in motorbikes, safeguarding them with the right insurance policy becomes paramount. The heart of this protection lies in understanding its Insured Declared Value or IDV. In this comprehensive guide, we’ll demystify IDV for the discerning Indian consumer.
What is IDV in MotorBike Insurance?
IDV is the maximum sum insured provided by your insurer in case of theft or total loss of your bike. In simple terms, it represents the current market value of your bike derived based on the preset formula, which is based on the manufacturing listed selling price of the bike and applying depreciation based on the bike’s age.
It’s the amount, which the insurance company would indemnify you with if your bike were to be stolen or completely damaged in an accident defined under the policy coverage.
This IDV is critical as it forms the foundation of your insurance policy and defines the premium for your bike as well, ensuring that in the event of unforeseen circumstances, you are not left financially stranded.
How to Calculate IDV in Bike Insurance
The calculation of IDV is pivotal as it determines the premium you’ll pay and the compensation you’ll receive from your insurer. IDV is computed based on the manufacturer’s listed selling price and adjusted for depreciation applied based on the bike’s age at the time of opting for the insurance policy. This formula considers the wear and tear your bike could have undergone since its purchase, ensuring the IDV remains realistic and closer to the market value.
To calculate the IDV, you subtract the depreciation amount from the manufacturer’s listed price, and if you have any accessories not included in the listed price, you can also include them under the electrical and non-electrical accessories segment by providing the selling price of those accessories after adjusting for depreciation. This will give you the final IDV for your bike.
Depreciation rates for your bike
Depreciation is the decrease in the value of your bike due to wear and tear over time. The standard rates are based on the bike’s age as follows:
Not exceeding six months: 5%
Exceeding six months but not exceeding one year: 15%
Exceeding one year but not exceeding two years: 20%
Exceeding two years but not exceeding three years: 30%
Exceeding three years but not exceeding four years: 40%
Exceeding four years but not exceeding five years: 50%
These rates are generally standard across all insurers and ensure a fair calculation of your bike’s current market value, factoring in the inevitable depreciation that comes with usage and age.
For bikes exceeding five years, IDV can be defined based on the mutual agreement between insured and insurer. Moreover, the General Insurance Council, along with the mandate received from Insurance Regulatory and Development Authority of India (IRDAI), has provided the depreciation rates for vehicles exceeding five years but not exceeding 10 years, which are being followed for higher aged bikes.
Factors affecting IDV in bike insurance
The IDV isn’t a static number. Multiple factors influence its value:
1. Age and Model of the Bike: High-end models or recently launched bikes often command higher IDVs. As the bike ages, its IDV typically decreases, considering the depreciation.
2. Depreciation: The longer you’ve owned your bike, the more its value decreases.
3. Geographical Location: Bikes in areas with higher theft rates or prone to accidents might have different IDV calculations.
4. Accessories and Modifications: Custom modifications or added accessories that weren’t part of the original purchase can influence the IDV. They can increase or decrease the value depending on their nature and relevance.
Consequences of choosing the wrong IDV
Selecting the incorrect IDV can be detrimental. If you set it too high, you’ll be overpaying on your premiums. On the flip side, if it’s too low, you’ll be inadequately compensated in the event of a claim. It’s essential to accurately assess your bike’s worth, seeking expert advice, if necessary, to ensure you’re neither underinsured nor overpaying.
Impact of IDV on motorbike insurance premium
IDV is directly proportional to the bike insurance premium. If your IDV is high, your premium will also be on the higher side and vice versa. This relationship is due to the risk taken on by the insurer. A higher IDV means the insurer commits to a larger compensation in the event of a total loss claim.
For example, if your bike has a high market value and you choose a high IDV, the insurer will expect a higher premium as they would have to pay a larger sum insured in case of a total loss claim. On the other hand, if your bike has a low market value and you choose a low IDV, the premium will be lower since the potential claim amount in the event of a total loss is lower.
IDV for motorbikes over 5 years of age
Bikes older than five years or those that are no longer in production can be a gray area when determining IDV. For such bikes, the IDV is agreed upon based on a consensus between the insurer and the insured, considering factors like the bike’s condition, availability of parts, and market demand.
This ensures that even older bikes can be insured at a fair value, considering their unique circumstances and market value.
Difference between IDV and premium rates
While IDV is an estimation of your bike’s current market value, the premium is the cost you pay to insure this value. A high IDV typically results in a higher premium because the insurer is taking on a higher risk. It’s crucial to understand this distinction and the correlation between the two, ensuring you make informed decisions about your insurance.
Having a clear understanding of both the IDV and the premium rates will help you choose the right insurance policy for your bike and ensure that you are adequately covered without overpaying.
Calculating IDV online
Today, digital tools simplify the process of determining IDV. Most insurance companies have online calculators, which are user-friendly and highly accurate:
1. Access the online platform of the insurer.
2. Navigate to the IDV calculator section.
3. Enter details like the bike’s age, model, accessories, etc.
4. The tool provides an immediate IDV estimate, streamlining the process and saving time.
These online calculators consider the relevant factors that influence the IDV and provide you with an accurate estimate of your bike’s current market value.
How Do Custom Modifications or Added Accessories Affect the IDV of a Motorbike
Custom modifications or added accessories can affect the IDV of a bike in the following ways:
1. Depreciation: Insurance companies generally take into account the depreciation of the bike’s value over time. Custom modifications or added accessories are not considered while calculating the IDV of the bike, and hence, they may not be fully reimbursed in the event of a claim. But insured can declare the accessories value along with the IDV for coverage.
2. Underinsurance: If the IDV is not adjusted to include the value of custom modifications or added accessories, it can result in underinsurance. In such cases, policyholders may not receive adequate compensation for these additional features.
3. Increased IDV: In some cases, if the insurance company agrees to consider the custom modifications or added accessories, the IDV may be increased to reflect the enhanced value. However, this would lead to higher insurance premiums since the IDV is directly proportional to the premium amount.
4. Separate coverage: Insurance companies may offer separate coverage for custom modifications or added accessories, requiring an additional premium. This ensures that these features are fully covered in case of any damage or theft.
It is important to discuss any custom modifications or added accessories with the insurance provider while purchasing or renewing bike insurance to understand the impact on the IDV and ensure adequate coverage.
Bottom Line
In the dynamic landscape of India where bikes play a pivotal role in daily life, understanding the intricacies of IDV becomes imperative. This knowledge ensures not just financial protection but peace of mind as you navigate the roads of this diverse nation. Armed with this comprehensive guide, every Indian motorbike owner is poised to make informed decisions about their insurance, ensuring their prized possession is always safeguarded.
Frequently Asked Questions (FAQs)
Why is the right IDV crucial?
Understanding the importance of the Insured Declared Value (IDV) is crucial for every bike owner in India. The IDV determines the amount of compensation you will receive in case of theft or total loss of your bike. It ensures that you are adequately covered without overpaying for your insurance. By accurately assessing the IDV, you can have peace of mind knowing that your bike is protected financially, especially in unforeseen circumstances.
What are the benefits of an ideal IDV?
Having an Ideal IDV for your bike insurance policy can provide you with better/appropriate coverage in terms of value. A higher ideal IDV means that you will receive an appropriate payout in the event of a claim (Indemnity). It is always important to strike a balance in terms of selecting the IDV so that the insured’s bike can be adequately insured.
Implications of underestimating IDV?
Underestimating the IDV of your bike can have serious implications. While it might lead to savings in premiums, it can also leave you under-compensated in the event of a claim. In such a scenario, you risk facing potential financial hardship as you will not receive sufficient compensation to cover the cost of your stolen or damaged bike.
It is essential to accurately assess the IDV of your bike and avoid underestimating it to ensure that you are adequately covered in case of an unfortunate event.
