Understanding How Depreciation Can Affect Your Two Wheeler Insurance Premium
All commodities undergo depreciation in their value over time. This is a fact that holds even for your two-wheeler. Note that your bike’s market value lowers as it undergoes wear and tear with time. This is known as depreciation of its original value.
Depreciation of your bike is one of the primary factors that affect your vehicle’s insurance premium when you purchase two-wheeler insurance online.
Although you can find out your two-wheeler’s premium cost using the free bike insurance premium calculator available on reputed insurers’ websites, let us understand how depreciation impacts the insurance premium of your bike.
Understanding Depreciation in a Two-wheeler
Depreciation can be described as the reduction in the value of an asset over time. This term is generally used for machinery and plants, but it is also used for vehicles. As you keep riding your two-wheeler, its parts go through wear and tear, affecting the two-wheeler’s overall value.
This, in turn, affects your bike insurance, as the depreciation for two-wheelers directly impacts your policy’s premium rate. When you buy online bike insurance, your insurer calculates the depreciation rate based on your vehicle’s age to decide the premium rate for your policy.
Understanding Insured Declared Value (IDV)
Insured Declared Value is your bike’s existing market value. It is the total amount that your insurer will pay you if your car is declared a total loss, which happens when the bike is either stolen or damaged beyond repair.
Generally, insurers use the two-wheeler depreciation to calculate the IDV. Therefore, the aging and wear and tear of your bike results in a decrease in its IDV.
How Depreciation Affects Your Bike’s Insurance Premium?
A bike’s premium is based on different factors, including the vehicle’s age, model and manufacturer, its IDV and selected policy features. While the rest of the factors remain unchanged, the IDV changes due to two-wheeler value depreciation.
Since the Insured Declared Value of the bike is the upper limit amount that your insurer will pay you in case your bike is totaled or stolen, it directly impacts the insurance premium amount of your bike. The lower the IDV amount is, the lesser the premium you have to pay – all because your two-wheeler is depreciating as it grows old.
Zero Depreciation Bike Insurance Cover
Before we understand the two-wheeler insurance zero depreciation meaning, we must know that zero depreciation cover is not included in your bike insurance, but comes as an option.
The reputed insurers like TATA AIG offer zero depreciation bike insurance as an add-on rider. You can include this in your policy to negate the depreciation effect during an insurance claim, which results in a higher amount as an insurance payout.
With zero depreciation cover, you can claim a higher amount as your insurer does not take the depreciated value of the bike or its parts into consideration when processing your claim.
Conclusion
How well you maintain your two-wheeler decides how much impact depreciation can have on its insurance premium. If you maintain your bike regularly and include zero depreciation cover in your policy, you will have to pay a lower premium as against owning a bike with no maintenance and high depreciation.
Frequently Asked Questions
- Should I go for zero depreciation bike insurance?
With zero depreciation insurance, you can ensure the expenses of spare parts do not affect you financially. The accounting of the spare parts will be made at a cost price instead of the depreciated price. This way, your expenses will be minimised and you can receive the maximum claim amount.
- What is the depreciation rate for a 2-wheeler?
The age of a bike decides its depreciation rate. The depreciation rate of any two-wheeler aged 6 months or below is 5%, from 6 months to 1 year is 15%, from 1 to 2 years is 20%, from 2 to 3 years is 30%, from 3 to 4 years is 40%, from 4 to 5 years is 50% and above 5 years, based on the IDV that the individual and insurer decides.
- How is depreciation calculated on an insurance claim?
The calculation of depreciation depends on the evaluation of the lifespan and Replacement Cost Value of an item. RCV can be described as the representation of the existing cost of repairing/replacing an item. Its lifespan is the average life expectancy of the item. Once you understand these procedures you can evaluate your claim accurately.