Decode Depreciation & Its Impact on Your Two Wheeler Insurance Policy

Your vehicle ownership experience might have certainly introduced you to the concept of depreciation. Depreciation is applicable to all machines and equipment, lowering their value over time. Thus, if you have purchased a used vehicle, it certainly would have been cheaper. This concept of depreciation extends to two wheeler insurance too. The insurance companies adjust the appropriate depreciation rates for your bike before compensating you for any damages. The rationale behind it is that as vehicles get older, it gets affordable to maintain them, and hence, a lower compensation is paid.

How does depreciation impact your two-wheeler insurance cover?

For bike insurance covers, the amount of depreciation affects the Insured Declared Value (IDV) as determined by the insurance company. Factors like the age of the vehicle, wear and tear due to routine use, and a definitive useful life of the vehicle, are what determine the depreciation rate. It is calculated based on the assumption of what value your vehicle would fetch if sold in the open market in an as-is condition. A key impact of depreciation on your bike insurance policy is that it reduces the compensation paid towards repairs. It is due to the components that require replacement that vehicles lose some value and in turn, a lower reimbursement is made. In addition to the above, depreciation also lowers the amount of IDV. Reducing the IDV for your bike results in a lower compensation that shall be paid in the event of a complete loss or damage to your bike. As IDV decreases, there is a reduction in bike insurance price too. * Standard T&C Apply

Are there any specified rates of depreciation specified by the regulator?

Yes, the Insurance Regulatory and Development Authority of India (IRDAI) has laid down standardised rates of depreciation for individual spares, and hence, a different amount of compensation is provided for every spare. You can visit the official website of IRDAI for further details.

• Depreciation for rubber, nylon and plastic spares is specified at the rate of 50%.
• Depreciation for the battery of the vehicle is set at 50%.
• Depreciation for fibreglass components is 30%.

* Standard T&C Apply For all other components, the depreciation is calculated based on the IDV of the vehicle, which is mentioned below:

Age of the bike	Depreciation rate for determining the IDV
Not more than 6 months	5%
More than 6 months but less than 1 year	15%
More than 1 year but less than 2 years	20%
More than 2 years but less than 3 years	30%
More than 3 years but less than 4 years	40%
More than 4 years but less than 5 years	50%

  For vehicles that are either older than 5 years or discontinued by the manufacturer, the IDV is determined mutually by the insurance company and you, the policyholder. * Standard T&C Apply

Is there a way to overcome the limitations brought by depreciation in your insurance cover?

Yes, depreciation can be covered by your comprehensive two-wheeler insurance plan by opting for a zero-depreciation add-on. This add-on is also known by different titles, like a bumper-to-bumper cover, nil depreciation cover, and a zero-dep plan. With the help of such an add-on, any impact of depreciation is covered by the insurance plan, enhancing the pay-out of your policy. To conclude, depreciation requires you to pay from your own pocket at the time of an insurance claim but can be overcome using a zero-depreciation add-on. So, whether you are buying an insurance policy for the first time or are due for a two wheeler insurance renewal, make sure to purchase a zero-depreciation plan in your comprehensive insurance coverage. * Standard T&C Apply Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.