Depreciation Affect: Purchasing an insurance policy can be as daunting a task as is buying a two-wheeler for yourself. It’s a long-term commitment to the protection of your vehicle and even your own well-being as a vehicle owner. Several factors come into play when you’re making the final decision. Out of all the variables that make up an insurance policy, depreciation is one of the most important ones. It has a significant impact on the premium of your two-wheeler’s insurance.
What is depreciation?
It is termed as the rate at which the insurers quantify the loss in value of an insured product due to wear and tear over time. It is based on the Insured Declared Value (IDV) of your product, i.e. the maximum compensation you will get for damages done to your vehicle due to any unforeseen accidents. This takes into account the market value of your vehicle. Therefore, the older your vehicle, the higher its depreciation rate. In other words, the IDV of your two-wheeler depreciates each year meaning, the value of your vehicle drops yearly.
What does depreciation affect?
The IDV is the total that your insurer would pay in case of any loss or damage to your bike. The higher the IDV of your vehicle, the higher would be the insurance premium. A reduction in the value of your bike would result in a reduction in the amount that your insurer would pay for you during claim settlement. As your bike gets older, you will have to pay a lower premium each year, but this also means that you will get an equally low compensation in case of any unfortunate circumstance or mishap.
Thus, simply put, depreciation has a negative effect on you and is a means for losses; for instance, in case of minor repairs/replacement for your vehicle, the compensation would be according to the IDV rather than the actual value of these repairs, which ultimately impacts your finances negatively. Moreover, there are some set depreciation rates laid down by the IRDAI. Some of these are – rubber, nylon, plastic, fiberglass parts of your bike, as well as batteries, tyres, and tubes, which are depreciated at 50%.
Zero depreciation cover
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You can pick some covers as per your need over and above the insurance policy for an extra layer of protection or as an extension in coverage. One of these is the zero depreciation cover/nil depreciation cover, wherein the insurer will pay the whole exact amount of your claims without accounting for depreciation. It also means that you will be reimbursed in full with no extra expenses for all replacements. Hence, this cover will shield you against losses while purchasing new parts or filing for a claim.
It can therefore be concluded that depreciation has a significant impact on the insurance premium of your two-wheeler. Still, it is possible to get out of the likely losses by purchasing covers such as the zero depreciation cover. Keeping in mind the varying effects an insurance variable can have, Cholamandalam MS offers its two-wheeler insurance online for you to enjoy a protected & stress-free ride while availing yourself of all the best benefits.