Insurance is like a spare tyre. You may not require it, but not having one is not an option.
Insurance is like a spare tyre. You may not require it, but not having one is not an option.
  • How Depreciation Affects Your Two Wheeler Insurance

    Buying or renewing your two wheeler insurance policy seems to get more complicated every time. With the number of variables and factors that go into the calculation of a two wheeler insurance premium, it seems like all that Math you learned in high school might actually pay off.

    To simplify the process, here’s a breakdown of the most important factor that goes into calculating your insurance premium- depreciation.

    What is Depreciation?

    Depreciation, in layman’s terms, is a rate by which insurers quantify the loss in value of an insured product due to ageing, wear and tear, etc. The depreciation rate is based on the Insured Declared Value (IDV) of your vehicle, which takes into account the selling price of your two wheeler. Thus, the IDV differs based on the vehicle make and model.

    Thus, the older the vehicle, the higher its depreciation rate.

    So how does depreciation affect your insurance? Insurance companies pay out a lower amount towards part replacement or damages for older vehicles. The exact percentage of the lower pay out depends on the age of the vehicle and its depreciation rate.

    What does Depreciation Affect?

    While the depreciation rate is uniform to the whole motorcycle, scooter or other two wheeler, in the event of an accident perhaps only a few of the parts need to be replaced. These parts would be subjected to depreciation at the time of filing a claim.

    There are set depreciation rates as laid down by the IRDAI (Insurance Regulatory and Development Authority of India), which are given below:

    Parts Depreciation rate (%)
    Rubber/nylon/plastic parts 50%
    Batteries, tyres and tubes 50%
    Fiber glass parts 30%

    Depreciation is something that comes along with two wheeler insurance and is unavoidable as the IDV is set by the insurance company. There is no way to work around it through a regular two wheeler insurance policy .

    However, buying an add-on cover like zero depreciation could offset the losses from depreciation.

    Zero Depreciation

    Zero depreciation, as the name suggests, is a product through which the insurer will pay out the exact value of the replaced parts without accounting for depreciation.

    Zero depreciation cover, also known as nil depreciation cover, is an add-on cover and has to be purchased separately.

    The advantages of zero depreciation are manifold, as stated below:

    • Claims would be paid out in full without calculating for depreciation.
    • Insured parts being replaced would be reimbursed in full, resulting in no extra expense at the time of repair.

    Thus, while depreciation does exert a strong influence on your total premium amount, the loss can be offset through the purchase of an add-on cover.

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