Are you planning to buy or renew your car insurance? Motor insurance can sometimes be a troublesome process. However, by understanding the various factors which influence the insurance premium, you can make the right decision.
What is Insured Declared Value in Car Insurance?
IDV or Insured Declared Value is the Sum Insured amount or the maximum sum that you can get while raising a claim. This forms the main aspect of calculating your Comprehensive car insurance policy. In this article, get to know what is IDV in car insurance, how it is calculated, its benefits and how to choose the best IDV value for your car policy.
The IDV of your car is the Sum Assured amount when you raise a claim during the policy period against your car insurance. In other words, it is referred to as the market value of the car or the price that you might receive for your vehicle. Based on this value, your insurance provider will be able to decide your claim amounts accurately. This also helps in determining the premium rate for your vehicle.
Depreciation Rates for Fixing IDV:
Every car depreciates in time. The age of the vehicle, wear and tear influences the depreciation of the car. The depreciation of your car starts as soon as you drive your car out of the car showroom. All car owners should be aware of the rate of depreciation for fixing the IDV is:
|Depreciation Rates for Fixing Insured Declared Value|
|Age of Car||Depreciation for IDV (%)|
|Less Than 6 Months||0.05|
|More Than 6 Months But Less Than 1 Year||0.15|
|More Than 1 Year But Less Than 2||0.2|
|More Than 2 Year But Less Than 3||0.3|
|More Than 3 Year But Less Than 4||0.4|
|More Than 4 Year But Less Than 5||0.5|
Note: For vehicles more than 5 years old, depreciation is not considered while fixing the IDV. The insurer will inspect and assess the vehicle’s condition. Post the assessment, both the insurer and the policyholder will have to mutually agree on the IDV.
Importance of IDV in Car Insurance:
While it is not mandatory to buy a comprehensive car insurance, your vehicle needs to be financially protected in case of any mishap. IDV is the market value of your car in case you are planning to sell it. Also, this is the amount that you will receive when you raise a claim due total loss. The higher the value, the higher the premium amount. However, by undervaluing or reducing this value, you may end up making a loss in case of damages or total damage.
Benefits of Higher IDV in Car Insurance:
Indian roads are tricky sometimes and an accident can put a dent in your car and your finances. Insuring your car with the appropriate IDV will save you money. However, there are advantages if you opt for a higher Sum Assured amount in car insurance. Here are some of them:
- Lower Risk: While a lower IDV will lead to a lower premium amount, it would also mean that when you raise a claim, you may not get the market value of the vehicle when your car is stolen or is totally damaged due to fire or natural calamities.
- Peace of Mind: Rest assured when you raise a claim for damages sustained by your car, an increase in IDV will offer you enough funding to repair or replace any parts of your car.
How Do I Calculate IDV?
When you buy a new car, the IDV is based on the manufacturer’s selling price taking depreciation into account. Below is the formula to calculate IDV in car insurance:
|IDV = (Manufacturer’s Selling Price – Depreciation Cost) + (Accessories Cost – Depreciation of These Accessories)|
If you have not added any accessories to your car, then the formula is:
|IDV = Manufacturer’s Selling Price – Depreciation Cost|
Points to Remember When Calculating the IDV:
The Insured Declared Value is one of the primary factors which influences the car insurance premium amount. Here some points to remember while calculating it in car insurance:
- Do not reduce the IDV so that the premium is lower. This will reduce your claim amount in case of any losses incurred arising out of a mishap.
- Choosing the right IDV may cost you a lower premium since a higher value will certainly increase the premium rate.
- Do not overstate the IDV since the insurer will compensate you based on the type of loss and not the entire IDV.
- Do not provide an inaccurate IDV as this could lead to a possible decline of your claim.
Also, read: Does Car Insurance Cover Windshield Damage?
FAQs About IDV in Car Insurance:
Here some of the frequently asked questions about Insured Declared Value in car insurance:
The Insured Declared Value of a new vehicle is based on the manufacturer’s price minus the depreciation cost of the vehicle. Please note, the depreciation rate is based on the depreciation rate for fixing Insured Declared Value by the Insurance Regulatory and Development Authority (IRDA) of India.
Here are some tips to know how to decide IDV for car insurance:
1. Ensure the IDV is the market value of your car since insurance companies will compensate based on the type of loss and not necessarily the entire IDV.
2. A lower premium amount can be due to lower IDV, hence, make sure you do not choose a policy based on a lower premium rate.
3. If you have included accessories in your car, it’s advisable to insure the accessories as well. This will increase the IDV and the premium amount accordingly.
The car insurance premium is directly proportional to the market value of the car or the IDV. Hence, the Insured Declared Value is the primary influencer in the insurance premium amount.
While IDV or Insured Declared Value is the SUM ASSURED amount or the market value of the car, NCB or No Claim Bonus is a reward in the form of discount provided by the insurance company for not raising any claim during the policy period while renewing the policy.
The IRDA of India fixes the depreciation rate while calculating the Insured Declared Value in car insurance. While it is 5% for vehicles less than 6 months old, vehicles less than 1-year-old, the rate is 15% and thereafter it is 20%, 30%, 40% and 50% every year.
The IDV for a new car is the manufacturer’s selling minus the depreciation value of parts of the car. Ideally, insurers consider the ex-showroom price of the car minus depreciation which is 5%. In this case, the maximum is 95% of the ex-showroom rate of the vehicle.
An IDV which is equal to the market value of the car is the best IDV for car insurance.
To keep the premium rate low, the IDV is decreased. Ensure you choose the right insurance company which offers accurate Insured Declared Value for your vehicle even if the premium amount is higher.
By reducing the IDV of the car, the premium rate of the insurance policy decreases accordingly. You need to choose the right IDV which is equivalent to the market value of the car.
Since the parts of the car depreciate due to the age or normal depreciation, the market value of the vehicle reduces. Since the market value declines, the IDV proportionally reduces as well.
When the car comes outside the showroom, the car value depreciates due to use and age. Since the market value of the car drops as soon as the car is driven out of the showroom, the IDV decreases accordingly.
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