Understanding IDV in Bike Insurance: A Comprehensive Guide
Bike insurance is a crucial aspect of owning a motorcycle, protecting you against financial liabilities and losses in case of an accident. When purchasing bike insurance, one of the most critical factors to consider is the Insured Declared Value (IDV). In this comprehensive guide, we’ll explore what IDV is, how it affects your bike insurance policy, and why it’s essential.
What is IDV?
Insured Declared Value (IDV) is the maximum sum assured by an insurance provider in case of theft or complete damage to your motorcycle. Simply put, it’s the current market value of your bike at the time of purchasing or renewing the insurance policy. The IDV determines the premium amount that you will pay for your bike insurance policy.
How is IDV calculated?
To calculate the IDV of your motorcycle, the insurance provider considers several factors such as the manufacturer’s listed selling price, depreciation, and the age of your vehicle. Here’s a breakdown of how IDV is calculated:
- Manufacturer’s Listed Selling Price: This is the price declared by the manufacturer when launching the bike model. It’s the starting point for calculating IDV.
- Depreciation: Depreciation is the reduction in value of your motorcycle due to its age, wear and tear, and usage. As per Insurance Regulatory and Development Authority of India (IRDAI), depreciation on bikes up to five years old ranges from 5% to 50%, whereas, for older bikes, it can be higher. For instance, if your bike is two years old, the depreciation rate will be around 15%.
- Age of the Vehicle: As your motorcycle gets older, the IDV decreases due to the depreciation factor. Though the rate of depreciation varies based on the age of the vehicle, it generally follows a set pattern. Generally, the IDV reduces by 5% every year for the first five years. After that, the rate of depreciation increases.
The formula to calculate IDV as per IRDAI is:
IDV = (Manufacturer’s listed selling price – Depreciation) + (Accessories if any – Depreciation)
Here’s an example to help understand better:
Let’s assume the manufacturer’s listed selling price of your bike is INR 1,00,000. It’s two years old, and the accessories worth INR 10,000 are fitted on it. The depreciation rate applicable to your bike will be 15%. Hence, the calculation of IDV will be as follows:
IDV = (1,00,000 – (15/100 * 1,00,000)) + (10,000 – (15/100 * 10,000)) IDV = (85,000) + (8,500) IDV = INR 93,500
Why is IDV essential?
IDV plays a crucial role in determining the premium amount you’ll have to pay for your bike insurance policy. Higher the IDV, higher will be the premium amount, and vice versa. While purchasing or renewing the policy, it’s essential to select an appropriate IDV as it affects the coverage you’ll receive in case of theft or damage to your motorcycle. If the IDV is too low, it may not cover all the expenses incurred in repairing or replacing your motorcycle. On the other hand, if the IDV is too high, you may end up paying a higher premium than necessary.
Factors that affect IDV
Several factors can influence the IDV of your motorcycle, such as:
- Age of the Vehicle: As explained earlier, the age of the vehicle affects the IDV, increasing the rate of depreciation.
- Modifications to the Bike: If you’ve customized your bike with additional accessories or made significant changes to its structure, it may impact the IDV.
- Geographic Location: The location where your bike is registered also affects the IDV. For instance, if you live in an area prone to theft or natural calamities, the insurance provider may charge a higher premium.
- Insurance Company’s Policies: Different insurance providers have different policies and formulas to calculate IDV.
Conclusion
In summary, Insured Declared Value (IDV) is the maximum sum assured by an insurance provider in case of complete damage or theft of your motorcycle. It’s calculated based on several factors such as the manufacturer’s listed selling price, depreciation, age of the vehicle, and any additional accessories fitted onto it. Selecting an appropriate IDV while purchasing or renewing the policy is crucial as it affects the coverage you’ll receive and the premium amount you’ll have to pay. By understanding IDV and the factors that affect it, you can make informed decisions about your bike insurance policy and ensure that you’re adequately covered against unforeseen circumstances.
