IDV in Car Insurance

Well, you might assume IDV or the Insured Declared Value like an alien in car insurance. But fortunately, it’s not! To put up in simple words, IDV is the maximum sum insured that one would receive as a reimbursement for a loss. It is the current market price of the insured car. If the car gets stolen or if someone faces a constructive loss of their car for the damages that are beyond repair, then the insurer would guarantee a maximum amount of the loss suffered.

Some people might have had come across their friends suggesting them to choose a good IDV while buying a car insurance policy. Well, they are absolutely right. This is because IDV in car insurance is one of the important components, which would determine the expenses that the car owners can incur from their insurers after an incident.

Say, for example, the car’s IDV is fixed at Rs.10 lakhs at the time of commencement of the policy. During an event of total loss, the insurer can compensate the car owner’s up to Rs.10 lakhs only.

How Is The IDV Calculated?

The insurance company would arrive at the IDV by fixing the manufacturer’s listed selling price of the insured car’s model and brand. Then they would adjust this for depreciation. Remember, the registration and the insurance cost of the insured car are not included in the IDV.

Any car accessories, which are not fitted by the factory, are also calculated separately at an additional amount if insurance is required for these accessories.

The Motor Tariff Act has stipulated the below standard rates of depreciation:

Up to 6 months95%
6 months to 1 year85%
1-2 years80%
2-3 years70%
3-4 years60%
4-5 years50%
5 years+To be negoiated

Formula For Calculating IDV

Let’s have a look at the formula for calculating the IDV of the insured car:

Now the car owners may wonder how the IDV would be calculated for a car aged over 5 years!

Well, there would be a discussion held by the insurance company. The IDV would be decided based on a mutual agreement between the insured car’s owner and the insurance company.

Here, instead of depreciation as the main factor, IDV is calculated based on the car’s condition as surveyed by the insurance surveyor, the model, the manufacturer and the availability of the car’s spare parts.

The IDV of the vehicle aged 5yrs & above depends on:

  • The manufacturer
  • Car Model
  • Availability of the spare parts

Why Is It Important To Know The Insured Declared Value Of The Car

To start with the basics, there are 2 types of car insurance policies.

  • Third-party car insurance, which is mandatory as per the Motor Tariff Act
  • Comprehensive car insurance policy

Comprehensive car insurance covers the Own Damage as well as Third Party. Any loss or damage to the insured car against natural, man-made calamities or any accidental damages are covered under the Own Damage category.

The third party covers any liability arising due to accidental damages causing permanent injuries or death of the third-party. It also covers third-party property damages.

Under the comprehensive insurance policy, IDV comes into picture while calculating the Own Damage Cover of the car insurance premium. The OD premium is calculated exactly on the basis of the IDV of the r car. This is because comprehensive insurance covers any damages caused due to natural or man-made calamities or due to any accidental damages. OD premium gets affected due to the IDV because depreciation keeps increasing. For third-party insurance, the premium would be calculated basis the make, model and engine cubic capacity.

So remember…

The older the car, higher would be the depreciation percentage

What If One Declares The IDV Lower?

The premium would obviously be low if the IDV is declared lower. This is because the insured car’s OD premium is proportional to the IDV.

One might save on the premium for the car insurance, but would have to compensate on a lower claim amount during a mishap. Which means, if the expenses due to accidental damage are higher, then the car owner will have to shell out from their own pocket. Simply because, the expenses are higher than the declared IDV!

Points to remember:

  • Never declare incorrect IDV. Get an IDV closer to the current market rate
  • The car’s IDV decreases as the car grows older
  • If a lower IDV has been declared, then the  premiums would be lower along with a lower coverage

What Happens During Car Insurance Renewal?

Never simply agree to pay the premium blindly what the insurer quotes during the renewal. Check whether the IDV quoted justifies the premium charged by us.

If one feels that’s not the coverage that he/she is looking form, then they have all the leverage to change the insurer. If that also seems to be difficult, then they can also negotiate with the insurer.

Remember, the premium for the comprehensive car insurance cover gets impacted by the IDV. So, it’s better not to understate or overstate the IDV, which would in turn make the insured car owners fall into trouble. They should and ensure that next time when they renew their car insurance policy, IDV that they declare is in sync with their car’s age and model.

Bottom Line

Buying car insurance is actually a long-term investment. And therefore we urge the car owners to declare the IDV correctly for their car. ACKO reminds the car owners that the IDV of their cars should be according to the age and model of their cars to avoid any commotion during claim.

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