Buying an insurance policy is often not looked into with required attention and at most times left at the dealer’s discretion. While sometimes it may work for you, it does not always. Your bike dealer does not know exactly what your coverage requirements are. A common reason for this neglect is the confusing jargons used in insurance documents. At first instance, it may be a daunting experience, but as you begin to break it down into simpler terms, insurance become easy too!
IDV or insured declared value is one such term that you will come across when buying a two-wheeler insurance. To have adequate insurance coverage, it is essential you understand insured declared value in detail and its significance in your 2 wheeler insurance plan. Let us have a look:
What is IDV?
Insured declared value or IDV is the maximum amount which the insurance company pays in the event of total loss or damage to your vehicle. It includes events like theft and when your bike is damaged beyond repair. To further simplify, it is the closest estimate of market value of your bike. Often individuals confuse IDV with the selling price, it largely differs from it.
How is IDV calculated?
Calculation of IDV is a complex process where the insurance company considers details like the model and made of the bike, location of registration, purchase date of the bike, along with its ex-showroom price which includes the state taxes. These factors are considered when adjusting the depreciation rates as prescribed by the Indian Motor Tariff Act. To put it in terms of a mathematical formula:
Insured declared value = (Listing price of the manufacturer – Depreciation) + (Accessories purchased additionally – Depreciation on such additions)
A key thing to note is that IDV is not calculated considering the registration and cost of insurance for the bike. The table below denotes the depreciations calculated while arriving at the IDV for your bike
|Age of the vehicle||Depreciation for the purpose of IDV|
|Not more than 6 months||5%|
|More 6 months but not more than 1 year||15%|
|More 1 year but not more than 2 years||20%|
|More 2 years but not more than 3 years||30%|
|More 3 years but not more than 4 years||40%|
|More 4 years but not more than 5 years||50%|
For vehicles whose age is more than 5 years or models which are discontinued manufacturer, the IDV is determined mutually by the insurer and you, the policyholder.
What is the importance of IDV?
The IDV helps to compensate in case your bike gets stolen or cannot be repaired in an accident. Setting the right IDV helps to avoid financial losses that otherwise can burn a hole in your pocket. Moreover, the IDV directly impact the two wheeler insurance price.
So, if you declare a higher IDV, it shall increase the premium whereas a declaring a lower IDV will result in a financial loss. To avoid these hassles, insurance companies generally offer a range between which you can determine the IDV based on the accessories added to your bike.
Always remember that setting the right IDV is crucial and it is a good practice to evaluate the IDV at each bike insurance renewal. This will help you not only have adequate coverage, but also avoid uncertain future losses.
Interesting related article: “What is Insurance?”