Car insurance is perceived to be complicated by most Indian car owners. So much that they prefer to hire an insurance agent to do their bidding instead of buying a policy by themselves. One of the reasons for this could be, an insurance policy is written in a legal language. It contains a lot of jargons like Insured Declared Value (IDV) that a layman may not understand. One way to simplify these jargons is by understanding its meaning and impact on car insurance coverage, premiums and claims. This article contains detailed information about IDV including what is IDV in car insurance, how is IDV calculated, how to declare the correct IDV, and much more.
- What is Insured Declared Value (IDV)?
- What Is IDV In Car Insurance?
- Why Is It Important To Know The IDV of The Car?
- IDV Calculator:
- How To Declare Correct IDV?
- Depreciation Rates For Fixing IDV:
- Benefits of Higher IDV in Car Insurance:
- IDV For A New Car:
- What Happens During Car Insurance Renewal?:
- What If One Declares a Low IDV?:
- IDV And Claims:
- Is Declaring A Lower IDV Helpful For The Insured Person?:
- Factors That Help To Determine The IDV Of A Car:
- How Does IDV Affect Your Car Insurance Premium?
- The Relation Between IDV And Premium:
- Advantages And Disadvantages of Decreasing IDV Value?:
- Advantages And Disadvantages of Increasing IDV Price?
- Frequently Asked Questions:
What is Insured Declared Value (IDV)?
The IDV or Insured Declared Value meaning is easy to understand. It is the monetary value of a product and this value is declared by the owner of that product.
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.
For example: Rahul has planted an apple tree in his backyard and after a few years, it has started bearing fruit. He lives in a flood-prone area and fears that the tree might get uprooted during heavy floods. He visits an insurance company and asks for an insurance policy for the apple tree. Now he needs to declare the worth of the apple tree. He quickly calculates that each year the tree bears around 100 apples and their cost would be about 10,000 rupees. Thus, he declares the IDV of his apple tree as Rs. 10,000 for one year. In case the tree gets destroyed in floods, the insurance company will pay approximately Rs. 10,000 to Rahul.
In the above example, understand that Rs. 10,000 may or may not be the market price of the fruits. It is the Insured Declared Value declared by the owner.
What Is IDV In Car Insurance?
The IDV Value of car or Insured Declared Value for cars is the maximum amount you can get i.e. the sum insured amount of your car insurance policy at the time of claim settlement. This is one of the main components of a comprehensive car insurance policy. You will be liable to get the highest value of the sum insured only when your car gets stolen or in case of major damage. Your car insurance company will calculate the claim amount based on IDV and other factors, thus it also helps in calculating the amount of premium you will be paying while you buy a car insurance policy. Note that IDV changes every year due to depreciation.
Why Is It Important To Know The IDV of The Car?
Buying a comprehensive car insurance policy and in turn declaring the IDV is not mandatory by law. However, you should go for an exhaustive policy to get maximum financial protection in case of a mishap related to the car.
As mentioned earlier, IDV is the approximate market value of the car. It is the amount of money you are likely to receive if you raise a claim for a total loss. Also, remember that higher the IDV the higher will be the amount of premium you need to pay for buying the policy. But the adverse effect of undervaluing or reducing this value your claim amount will also decrease and thus you may suffer a loss. Thus, the importance of IDV in car insurance is high.
The car owner does not need to make use of an IDV calculator in order to arrive at the IDV of a car. The insurance company needs to calculate this amount at the time of claim settlement. Here are the details related to how IDV is calculated and IDV calculation formula:
How Is IDV Calculated?
In this section, you will understand how to calculate the IDV of a car. With the help of the following formula, you will know how to decide IDV for car insurance.
The insurance company would determine the value of your car by taking a look at the manufacturer’s listed selling price of the insured car’s model, age 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 value.
The cost of any car accessories, which are not fitted by the manufacturer, is also calculated separately at an additional amount if an insurance is required for these accessories.
The Motor Tariff Act has stipulated the following standard rates of depreciation:
|Age of your Car:||IDV Percentage|
|Up to 6 months||95% (of Ex-Showroom price)|
|6 months to 1 year||85%|
|5 years+||To be negotiated|
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 are 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.
How To Declare Correct IDV?
To declare the correct IDV of your car, you need to do a bit of market research before buying a car insurance policy. Take a look at the prices of used cars of the same model and manufacturing year. You can do this research online. Simply visit a few websites that offer used cars for sale and check the current market value of those vehicles. You can then set a value approximately equal to these prices as the IDV of your car.
- Manisha owns a Baleno 1.3 Alpha that was manufactured in the year 2018.
- She did simple market research and found that a used car of the same model and manufacturing year is being sold for Rs. 6.5 Lakh in the year 2020.
- She set the IDV of her car at 6.5 Lakh while buying her car insurance policy. Manisha can claim this amount in case her car is stolen or is deemed a total loss.
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.
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 insured 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.
IDV For A New Car:
The IDV of a new vehicle is probably the easiest to calculate. This is because the depreciation value i.e. the reduction in the value of a car with time is only 0.05%. This amount is almost negligible for some cars. You can set the IDV of your new car by deducing this depreciation amount from the invoice value of the car and then set the IDV while buying your car insurance policy. In most cases, your car dealer will suggest the type of coverage you should buy, make an informed decision and then buy a policy that suits your personal needs.
What Happens During Car Insurance Renewal?:
One should not renew their car insurance policy in a haste, this can lead to major financial losses at the time of a car-related mishap. Make sure that you have already deduced the IDV of your car before car insurance renewal. When you begin with the process, you will notice that the suggested IDV is already set. Make sure to change this value if it is not close to the actual IDV of your car.
Note that the premium of your car insurance policy also depends upon the IDV of your car. Declaring a lower value will also reduce the claim amount and declaring a higher IDV will increase the cost of the policy.
What If One Declares a Low IDV?:
The premium would obviously be low if the IDV in insurance is declared lower than the actual amount. This is because the insured car’s OD premium is proportional to the value of the car.
One might save on the premium for the car insurance but would have to compensate for 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 his own pocket. Simply because the expenses are higher than the declared IDV.
For Example: John owns a Maruti Suzuki Baleno manufactured in 2015. The current market value of the car is around Rs. 5 Lakh. When he was buying a car insurance policy, the suggested IDV amount was 3.5 lakh and the cost of the policy was Rs. 9000.
Note, there is a difference of Rs. 1.5 Lakh in the suggested IDV and the current market price of the car. However, when he adjusted the IDV to Rs. 5 Lakh, the cost of his policy increased to RS. 10,000. Here, the difference of Rs. 1000 is critical because buying the policy at a lower rate would cause a loss of Rs. 1.5 lakh during claim settlement if John’s car gets stolen.
IDV And Claims:
In most cases of a car insurance claim, the IDV is not required for the calculation of the claim amount. However, while buying a comprehensive car insurance policy, it is important that you declare the IDV every year. The IDV of your car will reduce due to a decrease in its market value i.e. the value will depreciate with time. IDV comes into the picture for claim settlement only in the following situations:
You can raise a theft claim after the police declares your vehicle as “non-traceable”. In this situation, your insurer will settle a claim amount that is approximately equal to the IDV of your car.
Constructive Total Loss:
When a vehicle gets damaged due to a contingency, the insurer will assess the extent of damage. If there is a damage of 75% or more, it will require extreme repairs. In this situation, the repair cost of your car will be more than its IDV. Here it is advised that a total loss claim should be raised.
In an unfortunate situation where the car gets damaged beyond repair, the owner can raise a Total Loss claim. Here the IDV component of the car will be taken into account for settling the claim.
Is Declaring A Lower IDV Helpful For The Insured Person?:
No, declaring a lower IDV will be counterproductive in case of a major claim. It might look like a fair deal when purchasing the car insurance policy, however, a bigger sum of money will be subtracted from the final claim amount during claim settlement. Remember that the premium of a policy and the sum insured are in proportion with each other. Very few insurance companies would offer a low-priced policy in exchange for a higher sum insured.
Consider, Jane was browsing through various options for buying a car insurance policy for her hatchback car. Her car’s correct IDV was Rs. 3 Lakh, and she saw a quote of Rs. 6000 for the insurance policy. She declared an incorrect IDV for her car i.e. Rs. 2.5 Lakh. This reduced the premium to Rs. 5000 and Jane readily bought the policy. Her car suffered complete damage due to a landslide when parked while she was on a holiday. Because Jane had declared an IDV of Rs. 2.5 Lakh, she received this amount from her insurance company. She suffered a loss of Rs. 50,000 just because she declared the wrong IDV.
Factors That Help To Determine The IDV Of A Car:
The IDV value is dependent on a few factors related to your car. Here is a list of those factors:
1. Type Of Car:
Mainly three types of cars are available in the market – hatchback, sedan, and SUV (Sports Utility Vehicle). The value of a car depends upon its type. A hatchback car is usually cheaper as compared to sedans or SUVs. Some models of sedan cars can be very expensive. Thus, the IDV would be different for different types of cars.
2. Car Model:
Various car models of the same type, say a sedan, can have different IDVs. This depends upon the brand i.e. manufacturer and the features offered on a certain model of car.
3. Location Of Purchase:
There is a slight difference in the cost of a car depending upon the location of purchase. For example, the ex-showroom price of the same model can be different in Mumbai and Delhi.
4. Age And Depreciation:
The amount of depreciation on a vehicle depends upon its age. Older the car more the depreciation. It is nothing but the reduction in the monetary value of a car due to age. For example, two cars of the same model will have different IDVs because they were manufactured in different years.
Depreciation on accessories is also calculated while determining the amount of IDV. Thus, its value will change depending on the age and working condition of additional accessories.
How Does IDV Affect Your Car Insurance Premium?
The car insurance premium amount you pay for buying insurance is directly dependent upon the Insured Declared Value of your car. This is because IDV is the main component of a Comprehensive car insurance policy. One does not need to declare the IDV while buying a Third-party Policy, as the car is not insured for damages, this insurance is for other people.
If you adjust the offered IDV amount while buying the policy, you will notice that the premium will also increase or decrease. Thus, it becomes imperative that you know the correct IDV of your car before buying the policy.
The Relation Between IDV And Premium:
As mentioned earlier, IDV is directly proportional to the premium of your car insurance policy. If you increase the IDV, your premium will also increase. Likewise, if you decrease the IDV, the premium will also decrease.
Advantages And Disadvantages of Decreasing IDV Value?:
Here are the advantages and disadvantages of decreasing the IDV:
- The premium of your car insurance policy will reduce.
- You save money when you pay less for buying the insurance policy.
- The money can be used for other purposes.
- The sum insured of the car insurance policy will reduce.
- You will suffer a loss due to a lower claim amount.
- The claim amount will be lower than expected in case of Total Loss.
Advantages And Disadvantages of Increasing IDV Price?
Here are the advantages and disadvantages of increasing the IDV:
- The sum insured of your car insurance policy will increase.
- You will get a higher claim amount.
- You can use this money to buy a new car.
- The premium of your car insurance policy increases.
- You might never raise a claim for a total loss.
- You will suffer a loss by paying more money than required.
Frequently Asked Questions:
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.
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.
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.
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.
Yes, the IDV of your car may increase or decrease based on the ex-showroom price of your car. As the ex-showroom price is different in different locations, the IDV will also not be the same amount.
No, increasing the IDV will lead to an increased premium. You should avoid this as the chances of you raising a total loss claim are low as compared to other types of claims.
Yes, if you are buying a car insurance policy online, you will have the option to increase or decrease the IDV of your car. However, it is advised that only the correct IDV should be declared by the car owner.
You need to take into account the current market value of your car i.e. consider the original cost of the car and subtract the amount of depreciation it has suffered. The value you get is the IDV of your car.
IDV calculator is an online tool that helps you calculate the IDV of your car.
It is very easy to choose the best IDV for your car. Simply select the current market value of your car and then adjust it for depreciation. You will get the best IDV for your car.
IDV stands for Insured Declared Value while NCB stands for No Claim Bonus. IDV is the current value of your car. NCB is a discount you will get at the time of policy renewal if you do not raise a claim in the previous policy.
Each year your car’s value depreciates i.e. reduces due to wear & tear and usage of parts. Depreciation is the main component for calculating the IDV of a car. This is why IDV decreases each year at the time of car insurance renewal.
No, The IDV of a vehicle depends upon its market value and depreciation. It does not matter if a vehicle is private or commercial. The IDV is calculated in a similar manner for both.
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