Several factors affect car insurance premiums, and IDV is one of the most crucial. IDV helps determine the amount of premium policyholders need to pay against their comprehensive car insurance policy. But what is IDV, and how is it related to your premium amount?
Keep scrolling if you are looking for the correct answers to these questions.
What is the Insured Declared Value (IDV)?
IDV or Insured Declared Value is the maximum amount an insurance company pays the policyholder if the insured vehicle’s damage is irreparable. The policyholder declares the IDV amount at the time of insuring the car. Your premium amount varies depending on the IDV you choose while purchasing the vehicle insurance policy. If you choose a higher IDV, you must pay a higher premium, and vice versa.
Why is IDV Important in Car Insurance?
Vehicle owners buy comprehensive car insurance policies to protect their automobiles against unforeseen perils. Several components of an insurance policy ensure coverage for your car in case of accidents and damages. One such crucial component is IDV: Insured Declared Value.
As mentioned, you will receive the maximum value from the insurance company when your car is damaged or stolen. Thus, IDV represents your car’s current market value after deducting the depreciation value (gradual decrease in your car’s value over time).
Thus, IDV is a valuation metric for your car in an insurance policy. It is a baseline that helps determine your car insurance premium calculation and coverage. If you want to claim the right coverage amount for your vehicle and avoid overpaying premiums, it is essential to choose the IDV wisely.
What are the Factors Affecting the IDV of Your Car Insurance?
Here are some of the crucial factors that affect the Insured Declared Value of your car insurance policy:
- Vehicle Age: The Insured Declared Value represents a car’s market value. Thus, your vehicle’s age plays a crucial role in determining the appropriate IDV. If your vehicle is old, it has a high depreciation rate; thus, the IDV becomes low, and vice versa.
- Registration Information: Your vehicle’s IDV is affected by the area where it is registered. Cars registered in a metropolis generally have a lower IDV than those in Tier-II cities.
- Standard Depreciation: According to the Indian Motor Tariff, a car’s value depreciates as soon as it leaves the showroom. The depreciation percentage increases yearly, influencing the IDV of your car insurance policy.
How to Calculate IDV?
Car owners can use online IDV calculators on reliable insurance company websites to assess their vehicle’s IDV. It is easy to use and offers accurate results without the hassles of following a complex calculation method. The car IDV calculator is programmed to use the formula below for precise computation of your car’s IDV:
IDV= (Selling price of the car – depreciation) + (Accessories not listed in the listed selling price – depreciation)
Insurance, vehicle registration costs, and accessories not included in the standard fitting are excluded from the calculation of IDV. So, while making an insurance claim, policyholders must know about the inclusions and exclusions when calculating IDV.
As mentioned, a car’s depreciation starts when it comes out of the showroom. So, when you purchase a new vehicle, its depreciation is 5%, meaning it has an IDV of 95%. As your car ages, the IDV reduces due to the increased depreciation rate and other factors.
How to Decide the IDV of Your Car Insurance?
The IDV of your car reduces with the increase in depreciation value. Here is a representation of the depreciation rate to help you determine the IDV based on the car’s age:
| Age of the Vehicle | Depreciation Rate (in percentage) |
| Less than 6 months | 5% |
| Above 6 months but up to 1 year | 15% |
| Above 1 year but up to 2 years | 20% |
| Above 2 years but up to 3 years | 30% |
| Above 3 years but up to 4 years | 40% |
| Above 4 years but up to 5 years | 50% |
Policyholders can negate the effects of depreciation on their vehicle’s IDV by opting for a zero depreciation add-on cover when buying a comprehensive car insurance plan. Thus, when the insurer settles a claim in the event of an accident, they do not deduct depreciation from the sum insured, thus reducing your out-of-pocket expenses.
Although this coverage does not directly influence the IDV calculation, it impacts the claim settlement. Thus, understanding the role of Insured Declared Value (IDV) in determining car insurance premiums is essential for every vehicle owner. A well-calculated IDV ensures that you are adequately insured while managing costs effectively.
Always remember that lowering your IDV may reduce premiums in the short term, but it could lead to significant financial losses if an unfortunate event occurs. Thus, when selecting your car insurance policy, the goal should be to balance cost with adequate coverage.
