Purchasing a bike is a huge investment. To secure their assets, individuals also like to purchase a bike insurance policy. Not only does it protect vehicles, but it also offers financial assistance.
However, individuals need to understand various factors that can affect their comprehensive bike insurance premium, including NCB and IDV in bike insurance. One such factor is the bike depreciation rate. In this blog, we will understand in detail the depreciation rate of two-wheelers.
What is Bike Depreciation?
Bike depreciation is the decreased value of the bike as it ages. The depreciation value helps in deciding the current market value of the bike. It will help bike owners at the time of insurance claim and decide the bike insurance policy premium.
A bike is generally considered as a fixed asset. When the new bike hits the road, its market value starts decreasing. This can be due to general wear and tear, ageing, availability of new models, etc.
The depreciation rate of a bike is the percentage reduction in its value each year. The depreciation rate depends on the insured declared value.
What is the Insured Declared Value (IDV)?
Insured declared value is the maximum amount offered by the insurance provider in case of total loss and damage to the vehicle.
The insured declared value is generally calculated by deducting the depreciation rate. In simple words, the IDV in bike insurance is the current market value of the vehicle. The IDV values vary with time.
Below is the formula for calculating the IDV of the bike:
Insured Declared Value = (Current Market value of Bike – Depreciation Cost of Bike) + ( Cost of Accessories – Depreciation Cost of Accessories)
The bike depreciation rate influences the claim amount and also affects the bike insurance policy premium.
Understanding of Depreciation Rate of Two-Wheelers
Since the two-wheeler depreciation rate has a direct effect on the insurance claim and policy premium, understanding it is very crucial. The bike depreciation rate depends on the bike’s age and bike parts.
Depreciation Rate According to Bike Age
As the age of the bike increases, the depreciation value also increases. Below are the different depreciation rates as per the bike age.
| Bike Age | Depreciation Rate |
| Less than 6 Month Old | 5% |
| Between 6 to 1 Year Old | 15% |
| Between 1 Year to 2 Year Old | 20% |
| Between 2 Year to 3 Year Old | 30% |
| Between 3 Year to 4 Year Old | 40% |
| Between 4 Year to 5 Year Old | 50% |
| Over 5 Year | Decided based on Bike Condition. |
Depreciation Rate According to Bike Parts
The bike parts and components also have a depreciation rate. Below is the breakdown of the depreciation rate for bike components.
| Bike Part or Component | Depreciation Rate |
| Plastic/Nylon/Rubber Parts | 50% |
| Paintwork | 50% |
| Fibreglass Components | 30% |
| Metal Parts | Depends on the Bike Age |
What is Zero Depreciation Cover in Bike Insurance?
Zero depreciation, also known as nil depreciation, is a cover in a comprehensive bike insurance policy that helps in nullifying the depreciation effect of a two-wheeler. With this add-on, the policyholder will receive the total amount at the time of claim settlement without any depreciation deductions. Leading insurers like Tata AIG offer this insurance rider with their bike policies.
In a standard bike insurance plan, whenever the policyholder files a claim, the amount is usually lower due to the deduction for depreciation. However, with two-wheeler insurance with zero depreciation cover, individuals can safeguard themselves from the financial implications of depreciation.
Who Should Buy a Zero Depreciation Cover for a Bike?
Different individuals can buy zero depreciation coverage with their comprehensive bike insurance policy:
Premium Bike Owners: High-end bikes or luxury bikes are very costly and any damage can put a lot of financial burden on vehicle owners. Considering that, it is wise to invest in a bike insurance policy with zero depreciation cover.
Bikes with Expensive Spare Parts: There are some bikes whose spare parts are very costly and not easily found. With this add-on, the policyholder will get the maximum amount without factoring in the depreciation in case of damage to the bike’s spare part.
New Bike Owners: Individuals who have recently purchased their bike should invest in this cover as it helps in retaining the highest value of the bike at the time of insurance claim for total loss or damage.
Accident-Prone Areas Residents: Those who live in accident-prone areas or danger areas also consider investing in bike insurance with zero depreciation cover. This will help individuals in mitigating the financial cost arising from accidents.
Inexperienced Riders: The rookie bike owner or who just has learned to ride the bike needs to purchase this add-on with their bike insurance policy. Since they are inexperienced, the chance of getting into accidents is higher. The policy add-on will help in assisting the repair cost.
Conclusion
Buying bike insurance is crucial. However, before purchasing any plan, it is best to understand various aspects, such as depreciation rate, etc, which affect the bike insurance policy premium and claim amount.
To negate the depreciation effect on bikes, it is suitable to purchase a bike insurance policy with zero depreciation add-on. This will offer enhanced protection to two-wheelers.
