How does depreciation affect your two-wheeler insurance premium calculations? Learn how having a zero-depreciation add-on cover helps.
When calculating your premium for two-wheeler insurance, you may forget to include the depreciation factor. However, please note that your premium may go up or down based on the rate of depreciation, which is determined by the age of your vehicle. The moment your two-wheeler is out of the showroom, its value depreciates.
What is the depreciation level for two wheelers?
The IDV or insured declared value is determined as per the listed selling price by the manufacturer. It differs on the basis of the brand and model. Your insurance /renewal depreciation would be worked out taking in account the above factors. But do remember that two-wheeler depreciation rate is something that will increase each year.
For instance, depreciation of about 5% applies for a bike or scooter that is less than 6 months old. Once it crosses the 6-month mark, depreciation increases to 15%. You can take a look at the following depreciation rate chart
- Exceeding 1 year but not exceeding 2 years -20%
- Exceeding 2 years but not exceeding 3 years- 30%
- Exceeding 3 years but not exceeding 4 years -40%
- Exceeding 4 years but not exceeding 5 years- 50%
In simple words, the older your bike gets, the lesser claim you will get for part replacement.
Parts where depreciation is applied
Depreciation applies to the bike, scooter, etc. as a whole. But during an accident, some parts need complete replacement. Whenever you need to renew two wheeler insurance or file a claim, then the replaced parts would be subject to deduction for depreciation. Mentioned below are the approximate rates for the same-
- All kinds of rubber and nylon parts along with plastic would be subject to 50% depreciation in case of replacement. The same applies for tyres, tubes and batteries.
- In case fiber glass components are replaced, a 30% deduction for depreciation would apply.
- For all parts made of glass, no depreciation is applicable.
Why must you know about depreciation?
The information about the depreciation factor in two-wheeler insurance can help you be more aware when it comes to two-wheeler insurance. Remember that depreciation would only result in higher premiums and reduction in claim amount for you.
If needed, you can consider increasing your auto insurance coverage. This can be done at the time of renewing your plan. If you are buying a two-wheeler, then work out your finances accordingly. Alternatively, a Zero Depreciation plan is a good option too.
What is Zero Depreciation and how does it benefit you?
Unfortunately, IDV is something that your insurance company decides and not you. But you can consider alternatives such as Zero Depreciation as a way to save expenses due to depreciation. It is also known as the Nil Depreciation cover.
As the name suggests, this can be purchased as an add-on cover, which comes for an extra premium amount. In this case, the insurer would compensate your loss or damage claim, without any financial deductions towards the depreciation of parts.
For example, if your bike had an accident and hence you filed claim for just Total Loss (TL) or Constructive Total Loss (CTL) – then the rate of depreciation is applicable.
However, if you chose to get a Zero-Depreciation or Nil Depreciation add-on benefit -
- No depreciation costs would be charged on making a claim. Hence, you are able to save more.
- Most claims for insured parts too would be settled, excluding depreciation consideration.
- With this Nil Depreciation, you enhance the value of your two-wheeler insurance. So future costs like repair, accident damages, etc. on the same become negligible.
- You get much needed peace of mind as unfortunate events like accidents will not burn a hole in your pocket.
Creating your own bike insurance calculator is very easy if you know the right factors to calculating your exact premium. On the whole, an add-on benefit like zero depreciation cover would mean little-extra premium but more savings. Also, with inflation and drastic increase in prices of motor parts, depreciation also accelerates. If you want to maximize your insurance claim benefits, then taking an add-on cover like this is highly recommended.
