Motorbikes are considered emblems of freedom, ease, and economic mobility in India’s bustling lanes and large highways, where public transportation is limited. For many, a motorcycle is more than simply a source of transportation; it is a reliable partner in modern life.
People have a profound attachment to motorbikes, and due to their large investment, protecting them with the appropriate insurance policy becomes critical. Understanding its insured declared value, or IDV, is at the heart of this protection.
Read: How To Check Bike Insurance?
What is IDV?
The term IDV (full form: insured declared value) refers to your vehicle’s current market value. In simple words, you can say that IDV refers to the maximum amount your insurance provider will pay you in the event of total bike damage or theft when you buy an insurance policy for your two-wheeler. IDV is derived by subtracting the vehicle’s depreciation from the manufacturer’s selling price.
The overall value of the covered vehicle is determined by the insurer to reimburse the policyholder in the event of irreparable damage or total loss due to an accident or theft. It is known as the insured declared value, or you can say that the maximum amount for which your bike can be insured is known as the insured declared value, or IDV. This is the amount insured in the event of a total loss of the two-wheeler or unrecoverable theft. In other words, the insured declared value of your bike is the current market price.
In the unfortunate event that your bike is stolen or damaged, the insured declared value (IDV) is used to determine the maximum amount for which you can file an insurance claim. Simply explained, the IDV is the highest sum assured that a vehicle insurance policyholder can obtain. As a result, you must report the exact insured declared value amount to ensure that the claim is settled.
Significance of IDV
It is very important to calculate the IDV of your bike, as it impacts your premium and the compensation you will receive from your insurer. There are some reasons why knowing the IDV of your vehicle is important. These are as follows:
- Choosing the proper price for your two-wheeler: The IDV assists in calculating the correct value of the two-wheeler. It is determined by a variety of factors, such as the bike’s manufacture, model, CC, and registration.
- Determines the amount of the premium: IDV determines not only the worth of your two-wheeler but also the premium amount that you will have to pay for the insurance policy.
- Amount of Compensation: IDV is the maximum amount received by the policyholder in the case of total damage or theft. Some people minimise the IDV of their vehicle to pay a lower premium. However, in such cases, if they lose their two-wheeler in theft or the vehicle gets damaged, the claim amount is determined by the disclosed IDV, which will be less.
- Price at resale: Your two-wheeler’s IDV is directly related to its market worth. As the IDV declines over time, it indicates your vehicle’s depreciation. When it comes time to sell your bike, potential buyers frequently look to the IDV as an indicator of its condition and value. A greater IDV can increase the attractiveness of your two-wheeler to purchasers, potentially leading to a higher resale value.
How is IDV calculated?
It is very important to calculate the IDV of your bike, as it impacts your premium and the compensation you will receive from your insurer.
IDV is calculated using the manufacturer’s advertised selling price and then corrected for depreciation.Remember that the value of your two-wheeler begins to depreciate the moment you purchase it. If the selling price of the bike at the time of purchase was one lakh, the IDV would be 5% lower for the first six months. For example, if your bike is stolen on the first day after purchasing an insurance policy, the maximum you may claim is ₹95,000, not ₹100,000.
IDV is calculated using the manufacturer’s listed selling price and is adjusted for depreciation based on the age of the bike when the insurance policy is purchased. This algorithm takes into account the wear and tear your bike may have experienced since purchase, ensuring the IDV remains realistic and near the market value.
To calculate the IDV, subtract the depreciation amount from the manufacturer’s listed price. If you have any accessories that are not included in the listed price, include them in the electrical and non-electrical accessories segment by providing the selling price of those accessories after adjusting for inflation.
Depreciation is a major criterion that is considered when the IDV of the vehicle is calculated. The value of a two-wheeler drops over time after it is purchased. The depreciation value is the decline in value from the purchase price. When computing your compensation, depreciation is taken into account.
The depreciation ratio over the life of a vehicle is:
For not longer than six months, 5%
For 6 months to 1 year, 15%
For one to two years, 20%
For 2 to 3 years old: 30%
For 3–4 years, 40%
For 4 to 5 years old, 50%
For vehicles that are older than five years, the IDV is decided differently. The IDV of a vehicle is directly related to the rate of depreciation. The older your bike, the lower your IDV.
The depreciation value of a vehicle that is more than five years old is assessed depending on the quality of its spare parts and its serviceability.
For outdated models, the IDV is decided by mutual agreement between the insurance carrier and the policyholders.
Some insurance companies hire surveyors to determine the correct IDV for an old bike. Of course, this adds to the premium that the policyholder must pay.
Factors influencing IDV in motorbike insurance
The IDV isn’t a fixed figure. A variety of things determine its worth:
- Bike Age and Model: High-end models or newly released bikes frequently command higher IDVs. Considering depreciation, the IDV of a bike normally drops as it matures.
- Depreciation: The longer you possess your bike, the less it is worth, and its IDV will be less.
- Geographical Location: Bikes in high-theft or accident-prone locations may have a different IDV calculation.
- Accessories and Modifications: Custom modifications or additional accessories not included in the initial purchase can have an impact on the IDV. Depending on their nature and relevance, they might raise or lower their value.
Difference between IDV and premium rates
While the IDV is a rough estimate of your bike’s current market value, the premium represents the cost of insuring that value. A high IDV usually means a higher premium because the insurer is taking on more risk. It is critical to grasp this distinction and the relationship between the two to make informed insurance decisions.
The impact of IDV on motorcycle insurance premiums
The IDV and bike insurance premiums are directly interconnected. If your IDV is high, so will your premium, and vice versa. This relationship exists because of the risk assumed by the insurer. A higher IDV signifies that the insurer is committing to a larger payout in the case of a total loss claim.
For example, if your bike has a high market value and you choose a high IDV, the insurer would anticipate a higher premium because they would have to pay a larger sum in the event of a total loss claim. If, on the other hand, your bike has a low market value and you choose a low IDV, the premium will be lower.
Conclusion
The insured declared value (IDV) of your car impacts your coverage, premium, and claim settlement. It reflects your vehicle’s current market worth, taking into account depreciation over time. With a basic understanding of IDV, you may make an informed selection when getting two-wheeler insurance.