The IDV or Insured Declared Value is a crucial factor for determining your bike insurance. It directly determines the compensation you get when your vehicle goes completely missing or stolen, or is irreparably damaged. In other words, the present market value of your bike minus its depreciation is the IDV of your vehicle. Therefore, to the policyholder of the insurance, it essentially becomes of importance to understand the subtleties of IDV so that they can be adequately equipped to decide on the amount they should pay for their insurance and the coverage they should undertake.
We have discussed all aspects of IDV in bike insurance in this comprehensive article, including its importance, how it’s calculated, how it affects your premium, and what happens if you undershoot or overshoot the declared IDV.
What’s IDV and Why Does it Matter?
IDV stands for Insured Declared Value. It is the maximum amount of money that your insurer will pay you if your bike gets stolen, or in case it goes up in total flames. In short, it is the sum insured under a comprehensive bike insurance policy. When the bike’s a new ‘un, the IDV is equivalent to ex-showroom. And then, with depreciation, its value decreases as does the IDV with time.
Understanding IDV is necessary as:
Compensation in case of Total Damage: If your bike gets stolen or completely wrecked, then the insurer will compensate you on the basis of the IDV. This is essential to help you get back from a financial loss point of view and buy a brand new vehicle.
Affects the Amount of Premium: It directly affects the premium amount for your bike. The higher the IDV, the more one will pay for the premium and the lower the IDV, the lower would be the compensation amount but it would reduce the premium.
Avoid Under-insurance: Lowering premium by undervaluing IDV might sometimes leave you short, when you have to make a claim.
Overstatement without any use inflates your premium with no real extra added value.
How is IDV calculated?
IDV calculation is a process that standardizes the market value of the bike along with its depreciation based on age. Though the process by which the insurers work may be the same, there could be a slight variation in the computing of IDV from firm to firm based on add-ons and policy terms.
IRDAI has allowed the following depreciation rate specifically from the age of a bicycle:
| Vehicle Age | Depreciation Rate |
|---|---|
| 0 – 6 months | 5% |
| 6 months – 1 year | 15% |
| 1 – 2 years | 20% |
| 2 – 3 years | 30% |
| 3 – 4 years | 40% |
| 4 – 5 years | 50% |
IDV is calculated for two-wheelers that are five years old or whose models are declared obsolete with mutual consent between the insurance company and the insured, with reference to the condition of the bike, spares availability, and so on.
Calculation for Illustration for IDV
Let’s say you have purchased a bike from the showroom at an ex-showroom price of ₹1,00,000. It has already crossed two years. Imagine this illustration for the calculation of IDV above.
IDV calculation of a 2-year-old bike with 20% depreciation:
| Description | Amount (₹) |
|---|---|
| Original Value (IDV) | ₹1,00,000 |
| Depreciation (20% of ₹1,00,000) | ₹20,000 |
| IDV After Depreciation | ₹80,000 |
That would mean the maximum amount you could recover in case your two-wheeler is completely stolen or lost is ₹80,000.
Factors Used While Calculating IDV for Bike Insurance
There are a few factors working in your favor while calculating the IDV of your bike:
The age of your bike is consider to be the biggest determinant of the IDV. The more recent your bike, the higher the IDV, as it has lower depreciation. But if the age of your bike is more, then the lesser will be its IDV, as it faces higher depreciation.
Manufacturer’s Listed Selling Price: The first step you make in order to calculate the IDV is the original price list by the manufacturer for your two-wheeler.
Depreciation: In the above table, IRDAI declares the depreciation rates that actually show how much value is being eroded by the bike every year.
There are specific add-on covers like zero depreciation cover or engine protection, and many more, provided by some policyholders. Although the add-ons will not affect your IDV directly, the add-ons do have a say in the amount that would be receive in case of a claim. For example, with the zero depreciation cover, your loss does not go through any depreciation.
How Does IDV Impact Your Bike Insurance Premium?
A higher IDV directly translates into a higher premium. This is because the insurer is more at risk-that is, the more money he stands to lose in case of a claim, the higher the IDV. A lower IDV increases your premium but would reduce the amount you would get in case your motorcycle gets stolen or irreparably damage.
High IDV = High Premium: Suppose, if your IDV is ₹1,00,000, then in the situation of comprehensive loss, the insurance company will pay the same amount but you have to pay a high premium.
Low IDV = Low Premium: You declared a low IDV of ₹50,000 and you paid a low premium, but in the case of theft or destruction, you will get only ₹50,000.
Consequences of Announcing a Small Value of IDV or Concealing the True Value of IDV
Announcing A Low Value of IDV: In some two-wheeler insurance policies, people declare the actual value of IDV to be low in order to reduce the quotation amount. It will surely slash down your initial paying expense but will leave you underinsured. The payout which you would get in case your bike gets wholly damage can be too small to rebuild your bike.
Over-Declaring IDV: This will cause you to pay a higher premium without getting any extra benefit. You will never get the payment of anything more than the market price of the bike. So, over-declaring some inflated IDV is utterly not justified.
How to Choose the Right IDV for a Bike?
Right choice of IDV will increase good coverage with a lower premium. Follow these tips:
Always keep the IDV in synchronization with the prevailing market price of your two wheeler. For ascertaining the value of your two wheeler, you can approach any online valuation services or dealers.
Age of the two wheeler: With time, the natural fall in depreciation reflects itself in the IDV. Update your IDV with your renewed policy, especially when your bike gets old by a few years.
Think About Risk: If your locality is prone to theft rates or if one makes frequent rides in difficult conditions. Then opting for a higher IDV is safer.
Do Not Undersell Add-ons: While IDV forms the crux, take add-on options like zero depreciation or engine protection on your policy. So the claim money is maximize without having the tedium of the deduction due to depreciation.
IDV and add-ons: Surfaces for your policy
Even if the IDV determines the maximum payout in case of total damage, the add-ons like Zero Depreciation Cover can add the sum ultimately paid in the claims. Zero Depreciation cover does not consider the depreciation of the bike while settling the partial damage claim. Zero Depreciation is the most useful add-on for new bikes as it ensures that one gets the full amount of the parts replace.
Other useful add-ons include:
Roadside Assistance: The service offers quick aid in case of breakdown.
Engine Protection Cover: It provides cover to the damage caused to the engine due to waterlogging, etc.
Consumable Cover: All consumables nuts, bolts, and lubricants costs incurred while repair are covered.
IDV value of Two Wheelers aging five years above.
Actually, in the case of bikes crossing five years, the IDV calculation does not tread that path again like other bikes. In case more than five year-old motorcycles are present then the usual depreciation chart used by the insurers is not follow by the insurers while processing new models. The IDV is arrive at under mutual consent between the insurer and policyholder. All these factors such as the condition of the vehicle, availability of parts, and resale value, are kept in mind by the process.
In case of older bikes, normally the most referred bike valuation expert or online tools are consult to estimate how much is in the market value. The IDV can thus be quite lesser than that determined here because of the inevitable wear and tear which comes with time.
Important two-wheeler observations are taken above 5 years old
Age and Condition: Age was important, but so was the condition. Well-maintained bikes may have a high IDV even if they are five years plus.
Agreed Value:
The value is agree upon at the time of taking the policy. Both the insurer as well as the policyholder agree upon it as the IDV.
Non-Production Models:
The IDV may also be lower for a non-existent model since the spares may not be easily procurable and after-market resale would be smaller.
Choosing Appropriate IDV of Older Vehicles Involves Serious Understanding in Terms of Market-Worth and Realistic Expectations
Tips While Choosing the Right IDV
The pay-out and your insurance premium should then be balance when choosing IDV. The guidelines as listed below guide you further on the right choice for the ideal IDV:
Maintain market value:
First of all, the IDV of your bike must be set at the market value of your bike. If you declare a low IDV to cut down on premiums, it would end up with low compensation. In case you declare a higher IDV, you may have higher premiums.
Depreciation of the bike:
Ideally, go for the depreciation rate age-related to the bike as issued by your insurer or even the standard IRDAI depreciation chart. This shall give an understanding which IDV to avail at the time of renewal of the policy.
Inspect the bike:
Provided the two-wheeler is in good condition and is more than five years old, its market value will be high. Another notable aspect is that an IDV that reflects the current condition of the bike could be consider.
Consider Your Risk Environment:
The premium of two wheelers will be decide based on IDV. live in a place wherein there is more likelihood of theft or accidents; so you are well place to choose a slightly higher IDV. But do not inflate it to unjustifiable levels.
Renewal Periods Adjust IDV:
When you renew your two wheeler, do not forget to revise the IDV. With each renewal cycle, the residual value of your two wheeler decreases, and should your IDV as well.
Do not Scrimp on Coverage:
You will save money because the IDV is low, but ultimately you may find you don’t have enough coverage at the worst possible time. So choose your IDV that balances some level of affordability with a suitable financial cushioning in case something does go wrong and there is a claim.
And with the proper IDV you will be sure to have the perfect extent of coverage without overpaying on your two-wheeler insurance policy premiums.
Conclusion
In very simple words, IDV in two-wheeler insurance is that primary element which in reality decides the compensation in case your two-wheeler gets absolutely damage either by theft or extreme damages. With the market value of your bike and premium without crossing the budget. It is going to be very much important that you choose the right IDV. This way, sensible decisions while buying or renewing your bike insurance policy could be made by understanding how IDV is calculated. How it would affect your premium, and what under or over-declaring IDV will get you.