You open your renewal notice expecting good news. The vehicle is a year older, its IDV has dropped, and every explainer you have read says a lower IDV means a lower premium. Yet the amount payable is higher than last year. Has the insurer made a mistake?

Usually, no. IDV depreciation and your premium are connected, but they are only two of several moving parts on the same bill. This guide walks through how depreciation works for Indian motor policies, shows the arithmetic with worked examples for a car and a bike, and points to the real culprits when a renewal jumps.

THE SHORT VERSION

Depreciation on its own pulls the own-damage premium down, not up. When the total climbs, look first at your No Claim Bonus, add-ons, the third-party portion, GST and the re-fixed IDV.

01   What IDV really is

Insured Declared Value (IDV) is the most your insurer will pay if your vehicle is stolen or damaged beyond repair. Under the standard wording hosted on the IRDAI website, it is fixed on the manufacturer’s listed selling price of your exact brand and model at the start of the policy or at renewal, then reduced by an age-based depreciation percentage. Think of it as the insurer’s agreed market value for your vehicle, not the on-road amount you once paid.

The two jobs IDV does

• It caps your payout. In theft, total loss or constructive total loss (CTL), the IDV is the ceiling of what you can receive, subject to policy terms.

• It anchors your own-damage premium. Insurers calculate the own-damage (OD) premium as a percentage of IDV, and the percentage varies with engine capacity, vehicle age and other factors.

Two rules worth remembering

• The 75% rule. A vehicle is treated as a CTL when the combined cost of retrieval and repair exceeds 75% of the IDV.

• No mid-policy slide. The IDV stated in your schedule is treated as the market value for the whole policy period, with no further depreciation for total loss or CTL claims.

02   The official depreciation schedule

IRDAI-hosted policy wordings prescribe one age-wise schedule for fixing IDV. It is applied on the manufacturer’s listed price, and it applies to total loss and CTL claims. The two right-hand columns show what it does to a ₹8,00,000 car and a ₹1,20,000 bike.

AGE OF VEHICLE DEPRECIATION CAR IDV BIKE IDV

Up to 6 months 5% ₹7,60,000 ₹1,14,000

6 months to 1 year 15% ₹6,80,000 ₹1,02,000

1 to 2 years 20% ₹6,40,000 ₹96,000

2 to 3 years 30% ₹5,60,000 ₹84,000

3 to 4 years 40% ₹4,80,000 ₹72,000

4 to 5 years 50% ₹4,00,000 ₹60,000

Above 5 years By mutual agreement

Example prices are hypothetical listed prices chosen for easy arithmetic. Accessories not included in the manufacturer’s price are valued separately.

For vehicles older than five years, and for obsolete models the manufacturer has stopped making, the IRDAI wording leaves the IDV to an understanding between insurer and policyholder. In practice, standard two-wheeler wordings refer to the same age-wise approach; always confirm the figures on your own policy schedule.

Insurance depreciation is not resale value

The slab follows age alone. The used-vehicle market also weighs mileage, condition and demand: a ₹10,00,000 car now worth ₹7,00,000 has lost 30% in the market, and a new car can lose 15% to 25% of resale value in its first year. Your IDV ignores all that and uses the slab.

WATCH OUT

There are two different depreciation schedules in motor policies. The one above fixes IDV. A separate, gentler schedule (Nil, 5%, 10%, 15%, 25%, 35%) applies to replaced parts in partial claims. Several websites mix them up, so check which one a figure belongs to.

03   From IDV to premium: the arithmetic

Because OD premium is a percentage of IDV, a falling IDV drags the OD premium down with it. To see the effect, assume a flat OD rate of 3% of IDV. Real rates differ by insurer, engine size and city, so treat this only as a demonstration.

VEHICLE AGE BAND IDV (₹8,00,000 CAR) OD PREMIUM AT 3%

1 to 2 years ₹6,40,000 ₹19,200

2 to 3 years ₹5,60,000 ₹16,800

3 to 4 years ₹4,80,000 ₹14,400

4 to 5 years ₹4,00,000 ₹12,000

Illustrative only. Assumes a flat 3% OD rate and no discounts, add-ons or GST.

Other factors behind the OD rate

• Engine capacity, make and model. Bigger engines and costlier spare parts push the rate up.

• Location. Insurers price by city or RTO zone.

• Vehicle age and claims record. Age changes the rate band; claims decide your NCB.

So how can the bill still go up?

Take the same car in its third year, paying ₹16,800 of OD premium. With a 50% No Claim Bonus, the payable OD is ₹8,400. Then the owner raises an own-damage claim. Next year the IDV falls to ₹4,80,000, so the base OD premium falls to ₹14,400. But the bonus resets, and the owner pays the full ₹14,400. That is about 71% more than the year before, even though depreciation did exactly what it should.

04   Six real reasons your premium jumped

1. A No Claim Bonus that shrank or vanished. IRDAI-standard NCB slabs discount only the own-damage premium: 20% after one claim-free year, 25%, 35%, 45%, then 50% from the fifth year. An own-damage claim can send the bonus back to zero at many insurers, and letting a policy lapse forfeits it too.

2. Add-ons. Zero depreciation, engine protect, return-to-invoice and similar covers are priced as separate lines. Adding one, or a repricing of the same one, can swamp the saving from a lower IDV.

3. The third-party portion. Third-party premium is regulated, identical across insurers, and set by engine-capacity slab, so it does not fall as IDV falls. The rates most widely cited are ₹2,094, ₹3,416 and ₹7,897 a year for cars (up to 1,000 cc, 1,001 to 1,500 cc, above 1,500 cc) and ₹538, ₹714, ₹1,366 and ₹2,804 for bikes (up to 75 cc, 75 to 150 cc, 150 to 350 cc, above 350 cc), before GST. Media reports since 2025 describe proposals to raise these by roughly 10% to 25%, so confirm the notified rate on your renewal date.

4. GST at 18%. It is charged on the whole premium, so every rupee of increase in any component is taxed on top.

5. A re-fixed IDV. Each renewal restarts from the manufacturer’s current listed price of your model. If that price has risen, the base for depreciation rises with it, and your IDV, and OD premium, may fall less than you expect or even rise.

6. Crossing five years. Beyond five years there is no fixed slab. If you and the insurer settle on a higher IDV to reflect a well-kept vehicle, the OD premium follows.

RULE OF THUMB

Ask your insurer for a premium break-up: IDV, OD, NCB percentage, add-ons, third-party and GST. The line that changed is the one to question.

05   Depreciation at claim time: the parts schedule

Separate from IDV, depreciation is also deducted when parts are replaced in a partial-loss claim. IRDAI-hosted wordings set fixed rates by material, and an age-based scale for everything else.

PART OR MATERIAL DEPRECIATION

Rubber, nylon, plastic, tyres, tubes, batteries, airbags 50%, any age

Fibre glass components 30%

Glass Nil

Metal and all other parts, by vehicle age

AGE RATE AGE RATE

Up to 6 months Nil 3 to 4 years 25%

6 months to 1 year 5% 4 to 5 years 35%

1 to 2 years 10% 5 to 10 years 40%

2 to 3 years 15% Over 10 years 50%

What it looks like on a real claim

• Car, plastic bumper. A ₹10,000 replacement bumper carries 50% depreciation. The insurer pays ₹5,000 and you bear ₹5,000.

• Car, metal door panel, 3.5 years old. A ₹20,000 panel falls in the 3 to 4 year band at 25%. The insurer pays ₹15,000 and you bear ₹5,000.

• Bike, plastic fairing. A ₹6,000 fairing loses 50%. You receive ₹3,000.

• Paintwork. Depreciation of 50% applies to the paint material cost. On a lump-sum paint bill, material is taken as 25% of the total, so on an ₹8,000 bill the deduction is 50% of ₹2,000, which is ₹1,000.

• Windshield glass. Nil depreciation, so glass is paid at full value, subject to policy terms.

A zero-depreciation add-on removes the parts deductions above. It does not remove the compulsory deductible, consumables, mechanical or electrical breakdown, or normal wear and tear. Many insurers offer it only on vehicles up to five years old, and the saving is greatest on plastic-heavy modern cars.

06   Deductibles and add-ons

Two more items shape what lands in your hand after a claim.

Deductibles

• Compulsory. Deducted from every own-damage claim: ₹1,000 for private cars up to 1,500 cc and ₹2,000 above. For two-wheelers it is far smaller (one broker source cites ₹100), so read your schedule.

• Voluntary. Optional and added on top, in exchange for a premium discount. One insurer’s IRDAI-filed clause offers ₹1,500 to ₹15,000 and applies it to every event, including a total loss.

Example: on a ₹20,000 claim with a ₹1,000 compulsory and ₹4,000 voluntary deductible, you bear ₹5,000 and the insurer pays ₹15,000, before any parts depreciation.

Add-ons that interact with depreciation

• Zero depreciation. Removes the parts deductions in section 05.

• Return to invoice. On theft or total loss, pays the gap between IDV and the invoice value, often with registration charges.

• Engine protection. Covers engine and gearbox damage a standard policy excludes, such as water ingress.

• Consumables. Covers items such as engine oil, nuts and bolts.

• NCB protection. Keeps your bonus after a claim.

Add-ons come only with comprehensive or standalone own-damage cover, and age limits and claim caps vary by insurer.

07   When IDV matters most: theft and total loss

Here is where a low IDV becomes expensive. Suppose your car is 3.5 years old with a standard IDV of ₹4,80,000. After an accident, the repair estimate comes to ₹3,80,000. Since 75% of the IDV is ₹3,60,000, the car crosses the CTL line. The claim is settled on an IDV basis, subject to the deductible and any salvage value, rather than by paying the repair bill.

The false economy of under-declaring

Some owners lower the IDV to cut the premium. On the same car, dropping the IDV from ₹4,80,000 to ₹4,00,000 would save only about ₹2,400 a year at our 3% illustration. But a theft or total loss claim would be capped at ₹4,00,000, leaving an ₹80,000 gap. The aim is an IDV that matches what your vehicle would truly fetch.

08   Vehicles older than five years

After year five the fixed slab ends and IDV becomes a conversation. Come prepared. Compare listings of similar vehicles on used-vehicle portals, keep service records and photographs, and list any accessories you have fitted. If the insurer’s figure looks low, ask what market value it used, and negotiate with evidence. For obsolete models, spare-part availability often weighs heavily, so a clean maintenance history is your strongest argument.

09   Special cases

• Electric vehicles. The same age-based slab applies, but the battery is a large share of the vehicle’s value. Insurers differ on whether it sits inside the IDV or needs a separate battery cover, and IRDAI wording lists batteries at 50% parts depreciation. Ask about battery cover and zero depreciation.

• Bundled and multi-year policies. New cars carry 3 years and new two-wheelers 5 years of third-party cover, bought upfront with a one-year own-damage cover. Own-damage is renewed yearly, so IDV steps down each year, and later renewals no longer include the third-party charge.

• Commercial vehicles. Not covered here; their wordings and rates differ.

10   Eight smart moves before you renew

1. Compare the proposed IDV with what similar vehicles sell for today.

2. Request the premium break-up and question any line that rose sharply.

3. Compare quotes at the same IDV, the same NCB and the same add-ons, so the comparison is fair.

4. Avoid a policy lapse; it forfeits your accumulated No Claim Bonus and may trigger an inspection.

5. For a small claim, weigh the repair cost against the NCB you would lose.

6. Keep zero-depreciation cover while the vehicle is young, and reassess it as the vehicle ages.

7. Declare fitted accessories so they are valued in the IDV.

8. Read the deductible, exclusions and add-on terms on your own policy schedule.

11   Myths and facts

MYTH  Lower IDV always means a smaller total bill.

FACT  It lowers only the own-damage portion. Third-party premium, add-ons, NCB status and GST move independently.

MYTH  The insurer pays what I paid for the vehicle.

FACT  Payouts follow IDV, which starts from the manufacturer’s listed price less depreciation, not your on-road price.

MYTH  Zero-depreciation cover means zero deductions.

FACT  The compulsory deductible, consumables and wear and tear still apply.

Depreciation is not the villain of your renewal. It is a predictable, published slide that keeps your IDV honest. Understand it, question the rest of the bill, and you will pay for the cover you need, and be paid what you are owed.