Bike Insurance

Important Terms To Know in Bike Insurance

Here are some of the terms that you should know about in bike insurance:

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Insured Declared Value (IDV)

IDV represents the current market value of the insured vehicle. It is calculated based on the manufacturer's listed selling price and the depreciation rate of the vehicle. Over time, a vehicle's value depreciates due to wear and tear, age, and other factors, which leads to a decrease in its market value.

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For instance, when you buy a bike or a car, its initial market value is considered as the IDV. However, as the vehicle ages, its IDV reduces year by year due to depreciation. As a result, the insurance company will offer a lower claim amount if your vehicle is stolen or deemed a total loss in an accident.

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It is crucial to set the IDV at a reasonable value while purchasing insurance. A higher IDV might seem beneficial as it promises a higher claim amount in case of total loss, but it also leads to a higher premium. Conversely, setting a very low IDV may result in inadequate coverage and compensation during a claim.

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Insurance companies usually provide a predefined percentage of depreciation for various vehicle parts based on their age. Therefore, it is essential to understand the IDV calculation method and choose the appropriate value that offers adequate coverage for your vehicle while ensuring a reasonable premium. Regularly re-evaluating the IDV while renewing the policy is advisable to ensure the coverage remains appropriate as the vehicle depreciates over time.

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How IDV works:

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1. Calculation: The insurance company calculates the IDV based on the current market value of the insured vehicle. It is arrived at by considering the manufacturer's listed selling price of the vehicle and adjusting it for depreciation based on the vehicle's age and condition.

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2. Depreciation: As a vehicle ages, its value decreases due to wear and tear and other factors. The IDV takes this depreciation into account, and the value is lower for older vehicles compared to newer ones.

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3. Insurance Premium: The IDV has a direct impact on the insurance premium amount. Generally, the higher the IDV, the higher the premium, and vice versa. It is because a higher IDV implies a greater coverage amount and a higher potential payout for the insurance company in case of a total loss or theft.

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4. Claim Settlement: In the event of a total loss or theft of the insured vehicle, the insurance company will settle the claim based on the IDV. The policyholder will be reimbursed up to the IDV amount, minus any applicable deductibles or policy exclusions.

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5. Importance of Accurate IDV: It is crucial for the policyholder to ensure that the IDV mentioned in the policy accurately reflects the vehicle's current market value. If the IDV is set too low, the policyholder might not receive adequate compensation in case of a claim. On the other hand, an excessively high IDV might lead to higher insurance premiums than necessary.

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6. Annual Depreciation: The IDV of a vehicle decreases each year at the time of policy renewal due to depreciation. Insurance companies follow a standard depreciation schedule based on the vehicle's age. However, some insurers offer a special IDV protection add-on, which maintains a higher IDV even after the vehicle ages, ensuring better compensation during claims.

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It's important for vehicle owners to review and understand the IDV specified in their motor insurance policy. If the IDV seems inaccurate or insufficient, they should discuss it with their insurance provider to ensure they have appropriate coverage in case of an unfortunate event. Regularly updating the IDV to reflect the vehicle's current market value helps in getting the most out of the insurance policy and ensures adequate protection for the insured vehicle.

No Claim Bonus (NCB)

No Claim Bonus (NCB) is a discount offered by insurance companies to policyholders who have not made any claims during the policy term. It serves as a reward for safe and responsible driving, encouraging policyholders to maintain a claim-free record.

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How No Claim Bonus works:

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1. Claim-Free Period: When a policyholder does not make any claims against their insurance policy during a specific policy period (usually one year), they become eligible for No Claim Bonus.

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2. Bonus Accumulation: With each claim-free year, the policyholder accumulates a No Claim Bonus. The bonus amount increases progressively for each consecutive year of claim-free driving.

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3. Percentage-Based: The No Claim Bonus is calculated as a percentage of the own damage premium component of the insurance policy. The exact percentage varies between insurance companies but typically starts at 20% for the first claim-free year and can go up to 50% or even more for several consecutive claim-free years.

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4. Transfer and Retention: No Claim Bonus is usually transferable when the policyholder switches to a different insurer. If they decide to change their vehicle, they can also transfer the accumulated NCB to the new vehicle's insurance policy. In some cases, policyholders can also retain a portion of the NCB even after making a claim (known as the NCB retention benefit).

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5. Impact on Premium: No Claim Bonus can significantly reduce the insurance premium amount. The more NCB a policyholder has accumulated, the greater the discount on their premium for the next policy term.

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6. NCB Protector: Some insurance companies offer an optional NCB protector add-on. With this add-on, policyholders can safeguard their NCB even if they make a claim during the policy term. This ensures that they retain their accumulated NCB discount despite an occasional claim.

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Zero Depreciation

Zero Depreciation, also known as Nil Depreciation or Bumper-to-Bumper insurance, is an add-on cover offered by insurance companies for motor insurance. It provides comprehensive coverage to policyholders by waiving off the depreciation on certain parts of the insured vehicle during the claim settlement process.

 

How Zero Depreciation works:

 

1. Depreciation: When a vehicle gets damaged or requires repairs, the value of its parts decreases due to wear and tear over time. This reduction in the value of parts is known as depreciation. During the claim settlement process, the insurance company considers this depreciation while calculating the claim amount.

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2. Zero Depreciation Add-On: By opting for the Zero Depreciation add-on, the policyholder can avail themselves of a significant benefit. It ensures that the insurance company does not factor in the depreciation of certain vehicle parts during a claim. As a result, the policyholder receives a higher claim amount compared to a regular insurance policy.

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3. Coverage: Zero Depreciation typically covers the depreciation on parts made of fiber, rubber, plastic, and glass. These parts are more prone to wear and tear and their value diminishes rapidly over time. With Zero Depreciation, the policyholder can claim the full cost of replacing such parts without any deduction for depreciation.

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4. Limitations: It's important to note that Zero Depreciation does not cover the depreciation of metallic parts and other components not listed under the policy. The coverage is usually limited to a specific number of claims during the policy term, and some insurers might have restrictions on the age of the vehicle to be eligible for this add-on.

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5. Higher Premium: Since Zero Depreciation offers more comprehensive coverage and higher claim benefits, the premium for policies with this add-on is higher compared to regular insurance policies.

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Zero Depreciation is highly recommended, especially for new vehicles and vehicles with expensive parts, as it provides greater financial protection in case of an accident or damage. It ensures that the policyholder can get their vehicle repaired with minimal out-of-pocket expenses, making it a popular choice among vehicle owners who prioritize comprehensive coverage and peace of mind. However, policyholders should always review the terms and conditions of the Zero Depreciation add-on with their insurance provider to understand its scope and limitations fully.

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Deductible

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With context to two-wheeler insurance, a deductible refers to the amount that the policyholder is responsible for paying out of their pocket before the insurance company settles the remaining claim amount. It is a standard feature in various types of motor insurance policies, including comprehensive car insurance and own damage cover.

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How a deductible works:

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1. Incident Occurs: If the insured vehicle is involved in an accident, sustains damage, or experiences a covered event like theft or vandalism, the policyholder can file a claim with their insurance company.

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2. Claim Evaluation: Upon filing the claim, the insurance company assesses the extent of damage, the cost of repairs, or the value of the loss incurred. The claim evaluation process helps determine the total claim amount.

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3. Deductible Deduction: Once the claim evaluation is complete, the insurance company deducts the pre-determined deductible amount from the total claim amount. The deductible is a specific sum chosen by the policyholder at the time of purchasing the motor insurance policy.

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4. Policyholder's Contribution: The policyholder is responsible for paying the deductible amount from their own funds. This payment is made to the repair facility or the party involved in providing the necessary services (e.g., repair workshop) before the insurance company proceeds with the claim settlement.

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5. Insurance Company's Payment: After the policyholder pays the deductible, the insurance company covers the remaining portion of the claim up to the policy's coverage limit. The coverage limit is the maximum amount the insurance company will pay for a claim.

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For example, suppose the total claim amount is INR 50,000, and the deductible chosen by the policyholder is INR 5,000. In that case, the policyholder will pay INR 5,000, and the insurance company will cover the remaining INR 45,000.

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Advantages of Deductibles in Motor Insurance in India:

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- Cost Control: Deductibles allow policyholders to have some control over their motor insurance costs. By selecting a higher deductible, they can often lower their insurance premiums. Conversely, a lower deductible results in higher premiums.

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- Discouraging Small Claims: Deductibles encourage policyholders to avoid filing small claims. For minor damages, it might be more cost-effective for the policyholder to pay for the repairs themselves rather than involving the insurance company.

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- Reducing Moral Hazard: A deductible reduces the risk of moral hazard, where the policyholder might act recklessly or negligently since the insurance company would cover all costs. Knowing they have to pay a portion of the claim amount themselves may encourage more responsible driving.