Understanding IDV End-To-End

Introduction

The often overlooked fact with bike insurance is its insured declared value – IDV. Ever wondered how much your insurer will pay you back for total bike damage? The answer lies in the IDV. 

IDV is the maximum amount of claim that your insurance provider will pay you in case of total damage beyond the repair or loss of your bike. 

In this blog, let’s understand IDV calculation and the importance of insuring your bike for a value that is closer to the actual market price. 

What is IDV Value in Bike Insurance?

In simple terms, IDV is the perceived value of your bike that your insurer has agreed to cover. When your bike is damaged beyond repair due to an accident or got stolen, the insurer is responsible for compensating for the bike. They will only pay an amount up to its IDV. 

Essentially, IDV represents the market value of your insured bike after considering depreciation. 

Let’s understand its importance with an example. Rahul has purchased a bike at Rs. 1 lakh. As his bike is brand-new, he could have insured it for Rs. 1 lakh, the market price of the bike. 

However, Rahul chose a lower IDV of Rs. 70,000. This means that if his bike got stolen just a day after buying insurance and he filed a claim, the insurance provider would pay a maximum of Rs. 70,000. This amount will go down further as his bike gets older, and depreciation will be taken into account while compensating for the bike. 

So, in that case, Rahul has to spend an additional amount out of his pocket (at least Rs.30,000) to replace the bike. Had he chosen to insure the bike for its full value and paid a slightly higher premium, his out-of-pocket expenses for replacement would have been way less.

How is IDV calculated?

The process of buying bike insurance begins with IDV calculation. It is calculated automatically based on the make and model of the bike. The insurer uses the selling price of the manufacturer and subtracts the depreciation value for older bikes. For brand-new bikes, the IDV will usually be the same as the market price.   

IDV = Bike’s MRP – Depreciation value. 

Depreciation value is based on the age of the bike. It is calculated as follows:

For such bikes, you and your insurer must arrive at a mutually agreeable IDV. For bikes older than 5 years, add-on zero depreciation covers are not provided as insurers expect these older bikes to break down more frequently, resulting in costly repairs. For cars older than 5 years, zero-dep is offered but only from offline sources.

How Do You Choose the Correct Insured Declared Value?

The IRDAI provides a specific formula to calculate IDV, and insurers must follow it. However, you can have a leeway of 15%. If you feel that your bike is over or under-insured, you can ask the insurer to change the IDV. 

Typically, IDV is your insurance provider’s liability in case your bike gets stolen. Many insurers write the bike off as a total loss in case the repair expenses amount to 75% of IDV.  

Ensure that you understand the market price of your bike and the cost of replacement before accepting the offered IDV. Choosing unreasonably higher amounts for IDV will make you pay higher premiums for no significant value. 

At the same time, choosing a lower IDV just to lower the premium is also not ideal. In case of theft, you have to pay a higher amount for bike replacement. 

Also, some insurers may determine that IDV is a fraction of the bike value, and they may choose to honour all claims in the same proportion. 

Suppose the formula says that your IDV is Rs. 1 lakh. However, if you choose Rs. 75,000 IDV to save on premium, the insurer will determine that IDV is 75% of your bike’s value. So, they may max all repair claims up to 75%, and you will have to pay the remaining 25% even though your policy covers those expenses. 

IDV becomes important during policy renewal. As your bike gets older, the IDV is calculated based on its age. If you feel that the market price of your bike is higher than the IDV, then you can ask the insurer to increase the IDV. 

Remember, IDV is used only for computations related to one’s own damage premium. The third-party insurance premium is always calculated based on the CC of your bike, and IRDAI fixes it. Personal accident cover also does not depend on the market value of your bike. 

Key Takeaways

IDV is the maximum compensation you can get in case of total loss or theft of your bike. Always choose an IDV that is closer to the market value of the bike. This will ensure that you will be compensated fairly in case of a major loss related to your bike.