Does Depreciation Affect Your Two-wheeler Insurance Premium?

Depreciation plays a vital role in deciding your two-wheeler insurance premium. The older your bike is, the more will be its depreciation. Luckily a zero-dep add-on can help you cover this depreciation borne by your bike over the years. Read further to know how depreciation affects your two-wheeler insurance cost and the significance of zero-dep cover for your bike.

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Understand the Depreciation Value of Your Two-wheeler

In the insurance industry, depreciation refers to the rate by which your insurer quantifies the loss of value of an insured vehicle due to factors like wear & tear, aging, etc. The depreciation rate depends upon the Insured Declared Value (IDV) of your bike, which differs for every model. Also, the older the vehicle the higher its depreciation rate.

How Will You Calculate the Insured Declared Value (IDV)?

IDV is calculated based on the current market price of your vehicle, not on the price you have paid to purchase it. The IDV value varies with time.

To get the maximum IDV, you must insure it as early as you have purchased your two-wheeler. Therefore, the older the vehicle, the lesser will be the IDV and the insurance premium. The IDV is calculated using the below formula-

(Current Market Value of the Bike - Depreciation Cost of the Bike) + (Cost of Accessories - Depreciation Cost of the Accessories) = Insured Declared Value (IDV)

How Does Depreciation Affect the Insurance Premium Price?

As your two-wheeler gets older with time, the rate of depreciation lowers the IDV.

Insured Declared Value (IDV) is the total amount your insurer will compensate you for the damages caused to your vehicle during an accident. It is determined by the market value of the vehicle rather than the cost of the vehicle. Therefore, the rate of depreciation will decide the amount that your insurance company will compensate you during an accident.

Also, as your vehicle gets older, you will have to pay a lower premium, but it also decreases the compensation amount in case of any mishap.

Rate of Depreciation for Your Bike

In India, as a bike owner, you must have at least a third-party bike insurance plan which covers all the financial and legal liabilities for the third party during a road mishap. So, it becomes essential for all bike owners to have this plan. However, the depreciation rate determines the premium you pay for this plan. In context to that, we have mentioned depreciation rates set by the IRDAI as per the bike's age and parts of the bike-

Rate of Depreciation According to the Age of the Bike

Age of the Bike	Rate of Depreciation in %
Less than 6 months old	0%
Between 6 months – 1 year	5%
Between 1 – 2 years	10%
Between 2 – 3 years	15%
Between 3 – 4 years	25%
Between 4 – 5 years	35%
Between 5 – 10 years	40%
More than 10 years old	50%

Rate of Depreciation According to the Bike Parts

Below we have mentioned the rate of depreciation as per the parts of the bike-

Bike Parts	Rate of Depreciation in %
Rubber/plastic/nylon parts of the bike	50%
Batteries, tyres and tubes of the bike	50%
Fiberglass parts	30%

For instance, your bike meets with an accident, and tyres of the bike are damaged. In such a case, 50% of the replacement bill will be borne by your insurer and the remaining 50% will be paid by you.

However, having a zero-depreciation add-on cover in a bike will help you offset the losses from depreciation.

What is Zero-depreciation Cover in Bikes?

Zero depreciation add-on cover in bikes is a solution to save expenses due to depreciation. As the name suggests, this is an add-on cover that can be purchased by paying an extra premium. Also, with a zero depreciation add-on, your insurer will compensate for the losses or damages without considering the depreciation.

Benefits of Zero-depreciation Cover in Bikes

The zero depreciation cover is an add-on that will help you save money while paying a premium.
You get peace of mind because claims are paid in full without calculating depreciation.
Under this, insured parts would be reimbursed in full, resulting in no expenses from your pocket.

What is Not Covered Under Zero-depreciationCover?

Below are some exclusions of this add-on cover-

Under this cover, you can raise a maximum of 2 claims. However, some insurers allow unlimited claims.
The damages to the bike parts due to regular wear and tear are not covered.
This add-on cover is suitable for up to two years of the bike's age.
This cover does not give benefits in case of theft, total loss, or constructive total loss.
Your insurance company will accept only own-damage claims that occurred in an accident.

Who Should Buy Zero-depreciation Cover on Bike?

A zero depreciation cover in a bike is an affordable cover that saves a lot in replacement or repair costs. Also, it is ideal for all new drivers and new bike owners.

You should buy this cover if your bike is not older than 2 years. It is also recommended for those who live in an accident-prone area or have a sports bike.

Summarising

Depreciation plays a vital role in deciding the IDV of the bike. To prevent it, you can buy a zero depreciation add-on cover in a bike insurance policy. However, it will increase your premium, but this way, your compensation amount is not affected by the depreciation rate.