IDV or Insured Declared value is the maximum sum insured in the event of total loss of an insured car. It is the current market worth of your vehicle. This is the amount the motor insurance company will reimburse to you. For instance, if IDV of the vehicle is Rs. 3 lakhs, then that is the maximum compensation amount by the insurer.
So when purchasing car insurance online, it is important to find out the IDV of your car. It will allow you to take an informed decision as to which policy is the best fit to your budget and need. Now let us understand how IDV influences motor insurance:
- You take an own-damage cover. It compensates in case the vehicle bears a loss due to a calamity or accident.
- Now, IDV will play a crucial role in calculating the own-damage component of the premium.
- Usually, this portion is up to 2 or 3 percent of the IDV.
- It is based on the cubic capacity and age of the vehicle. Note that higher the IDV, higher will be the premium.
- What Happens If You Declare a Low IDV?
An Insured Declared Value lower than the market value of the car, is because the own-damage premium is directly proportion to IDV. So, the premium will be lower if the IDV is lower. This will help you in saving on premium. But, you will be eligible for a lower claim amount given an accident or damage. If the expenses after an accident or damage are greater than the IDV received, then you will have to bear the amount that insurer does not reimburse.
- Should You Declare a Higher IDV?
If you declare a higher IDV, then the claim amount will also increase accordingly. Also, when you sell the car, the price of it will be higher than its actual market value. But, this is not always the case. Remember that IDV is the maximum amount or sum insured that the car insurance company has to to compensate for a vehicle’s loss
- So, declare an IDV that is close the car’s market value.
- Decreasing the IDV value will mean lower coverage and lower premium.
- IDV naturally decreases with the growing age of the vehicle.
- If you convey a higher IDV than the car’s current market value, then it can lead to a limited claim settlement or simple rejection or delay of it.
- Calculate the IDV for Your Car Insurance
So as understood, IDV is the maximum value which the insurer is liable to pay in case of total loss of the vehicle. The Insured Declared Value depends on the selling price of the car model as per that listed by the manufacturer. Greater the vehicle’s age, higher will be the depreciation percentage. The depreciation amount is fixed for cars, as per their age. Cars that are new will have maximum IDV, which will reduce with age.
Thus, we can calculate IDV as:
IDV = Selling price listed by the manufacturer x depreciation factor
Below given are the standard depreciation rates as provided by the Motor Traffic Act:
- Up to 6 months, the depreciation percentage (DP) is 5.
- From 6 months to a year the DP is 15%.
- Between 1 to 2 years the DP is 20%.
- Between 2 to 3 years the DP is 30%.
- Between 3 to 4 years the DP is 40%.
- Between 4 to 5 years the DP is 50%.
- IDV for Car Parts
Note that the IDV for accessories fitted to the automobile vehicle will be excluded from the manufacturer’s listed selling price. But it too shall be calculated in the same way. For partial loss claims, the depreciation is applicable on car parts as well.
- For four-wheelers, the depreciation rate for plastic/nylon parts, rubber tubes/tyres/parts, airbags, and batteries is 50%.
- The depreciation rate for car parts made from glass is nil.
- The depreciation rate for fibreglass car parts is 30%.
So, let’s discuss the detailed formula for IDV:
IDV = {[(Selling price listed by the manufacturer) + (Applicable Tax) + (Excluded accessories – depreciation)] – (Depreciation + Insurance costs + Registration costs)}
Buying car insurance on the internet is one of the easiest ways to compare policies. But, while doing so, do not forget to check the IDV of your vehicle. It will help you to analyze if the premium demanded is acceptable or not. IDV should be accurate so that you do not face any issues during claims and reimbursements.
- IDV Calculation for Vehicles of More Than 5 Years
Vehicles older than 5 years have a depreciation percentage as agreed by the insurer and the owner of the vehicle. The assessment of vehicle’s condition is carried out either by the car insurance surveyor or the dealer. The IDV in this case depends on the car model, the manufacturer, and availability of the spare parts.
- Understanding IDV during Policy Renewal
Usually, when searching for car insurance online, people pay what the insurer asks to. But, you must never pay whatever price is demanded, especially during the policy’s renewal. IDV of the car will change every year. You must check the current Insured Declared Value of your car, and understand if the premium asked is justifiable or not. Never hesitate to negotiate the premium amount.
And if unsatisfied with the figures, then you can switch to another insurer. Go through the policy features to see if you have sufficient coverage. When looking for a comprehensive plan, the premium will be determined by this aspect. As discussed, if your car has a higher IDV, then the premium will be more, and vice-versa during renewal of policy.
Final Words
The IDV of cars vary according to the schedule prepared by the IRDAI (Insurance Regulatory and Development Authority). You as an owner of the vehicle must stay updated with the Insured Declared Value or you may not get adequate compensation during a claim. At the time of taking a motor insurance, you must not understate or overstate the IDV.
