Insured Declared Value (IDV) in Car Insurance

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IDV In Car Insurance

Home / Car Insurance / Insured Declared Value (IDV) In Car Insurance

What is Insured Declared Value (IDV)?

Insured Declared Value (IDV) means the maximum or the highest amount you shall receive from the insurer if the insured asset is damaged beyond repair. For example, in car insurance, your insurer shall offer you the IDV of your car if it is damaged so severely (total loss) that it cannot be repaired. Note that the IDV is declared by the owner of the asset while insuring it. It directly impacts the payable premium — the higher the IDV, the higher the premium.

What is IDV in car insurance?
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Meaning
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IDV is the approximate market value of the car. It is the maximum amount you can get i.e. the sum assured amount of your car insurance policy during a claim. IDV changes every year due to depreciation.

Importance
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You will be liable to get the highest value of IDV only when your car gets stolen or in case of damage beyond repair. Also, the higher the IDV, the higher the premium amount and vice-a-versa.

Calculation
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ACKO will calculate the claim amount based on IDV and other factors. Thus, it also helps in calculating the payable premium while buying a car insurance policy.

IDV calculator
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Here's everything you need to know about the IDV calculator, including when and how to calculate and the role of depreciation in IDV.

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When to Calculate?
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The car owner does not need to make use of an IDV calculator to arrive at the IDV of a car. The insurance company (in this case ACKO) will calculate this amount at the time of claim settlement.

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How to Calculate?
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ACKO 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 we would adjust this value for depreciation.

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Role of Depreciation
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Every car depreciates in time. The age of the vehicle, wear and tear influence 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.

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Things to Remember
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The registration and the insurance cost are not included in the IDV value. The cost of car accessories not fitted by the manufacturer is also calculated separately if insurance is required for accessories.

Standard rate of depreciation in IDV for cars as per The Motor Tariff Act
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Age of your Car Depreciation for IDV (%)
Up to 6 months 5%
6 months to 1 year 15%
1-2 years 20%
2-3 years 30%
3-4 years 40%
4-5 years 50%
5 years+ To be negotiated

Note: For vehicles more than 5 years old, depreciation is not considered while fixing the IDV. The insurer (e.g. ACKO) 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.

IDV calculation formula
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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.

With Accessories
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IDV = (Manufacturer’s Selling Price – Depreciation Cost) + (Accessories Cost – Depreciation of These Accessories).

Without Accessories
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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
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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.

1. Do Not Understate
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Do not reduce the IDV so that the premium is lower. This will reduce your claim amount in case of any losses incurred.

2. Do Not Overstate
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Do not overstate the IDV, since this will increase premium and ACKO will compensate you based on the type of loss and not the entire IDV.

3. Avoid Inaccurate Value
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Do not provide an inaccurate IDV as this could lead to a possible decline of your claim.

Factors that help to determine the IDV of a car
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The IDV value is dependent on a few factors related to your car. Here is a list of those factors.

1. Age of the car
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One of the significant factors that determine the IDV is the age of the car. The older the vehicle is, the lower its market value. Hence, the IDV for an older car will be lower compared to a brand-new vehicle.

2. Type of car
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Several types of cars are available in the market, including hatchbacks, sedans, SUVs (Sports Utility Vehicles) and MUVs (Multi-Utility Vehicles). The value of a car depends upon its type. A hatchback car is usually cheaper compared to sedans or SUVs. Thus, the IDV would vary accordingly.

3. Car model
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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. 

4. Location of purchase
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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. 

5. Depreciation
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Depreciation is a reduction in the monetary value of a car due to age. The older the car, the more depreciation. For example, two cars of the same model will have different IDVs because they were manufactured in different years.

6. Accessories
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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.

Relation between IDV and car insurance premium
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Here’s how the IDV impacts the premium of your Comprehensive Car Insurance Policy.

1. Valid only on Comprehensive plan
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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. Third-party insurance is for other people or third-party property.

2. Directly affects the premium
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If you adjust the offered IDV amount while buying the policy, you will notice that the premium will also increase or decrease. 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 Insured Declared Value
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IDV is directly proportional to the premium of your car insurance policy. If you decrease the IDV, your premium will also decrease.

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Advantages
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1. The premium of your car insurance policy will reduce.

2. You save money when you pay less for buying the insurance policy.

3. The money can be used for other purposes.

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Disadvantages
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1. The sum insured will reduce. Hence, the claim amount will be lower in the case of total loss.

2. . If the accidental damage expenses are higher, you will have to compensate for it.

3. You will suffer a loss due to a lower claim amount.

Advantages and disadvantages of increasing Insured Declared Value
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IDV is directly proportional to the premium of your car insurance policy. If you increase the IDV, your premium will also increase.

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Advantages
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1. The sum insured of your car insurance policy will increase.

2. You will get a higher claim amount.

3. It will offer you enough funding to repair or replace car parts. You can also use this money to buy a new car.

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Disadvantages
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1. The premium of your car insurance policy increases.

2. You might never raise a claim for a total loss.

3. You will suffer a loss by paying more money than required.

How to declare correct IDV?
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Research
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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 second-hand 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.

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Example
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Manisha owns a Baleno 1.3 Alpha manufactured in the year 2018. She conducted simple market research and found out 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 Rs. 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.

IDV and claims
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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:

Theft
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You can raise a theft claim after the police declare your vehicle as “non-traceable”. In this situation, ACKO will settle a claim amount that is approximately equal to the IDV of your car.

Constructive total loss
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When a vehicle gets damaged due to a contingency, ACKO will assess the extent of the damage. If there is damage of 75% or more, it will require extreme repairs. Here, the repair cost will exceed its IDV. Thus, a total loss claim should be raised.

Total loss
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In an unfortunate situation where the car gets damaged beyond repair, you can raise a Total Loss claim. Here the IDV component of the car will be taken into account for settling the claim.

How to decide if IDV should be low or high in car insurance? 

Setting the right IDV is the key to getting the most value out of your car insurance policy. But most people who are new to car insurance often get confused and wonder if IDV should be low or high. The answer to this question is — neither. In your car insurance policy, the IDV should neither be low nor high. 

The key here is to understand the correct, current market value of your car. Use this value as a benchmark for setting the IDV in your car insurance policy.

When should you purchase a car insurance policy with a higher IDV?

As mentioned before, the IDV of your car should be the correct value to get the most coverage for your car insurance policy. But sometimes, you may want to set a higher IDV if you find yourself in the following situations.

  1. You own a luxury car.

  2. The spare parts of your car are hard to find or expensive.

  3. You are looking for more coverage and are willing to pay an extra premium.

When should you purchase a car insurance policy with a lower IDV?

Setting a lower IDV for your car would mean receiving a lower claim amount in case of total loss or theft. A total loss occurs when the car gets severely damaged and its repair cost is more than the car’s value. In this situation, the insurance company will pay the IDV amount that you have set for the car while buying your car insurance policy. 

However, some car owners prefer to set a lower IDV if they are in the following situations.

  1. If they have an older car whose value is very less.

  2. If they have a certain budget set for buying a car insurance policy.

  3. If they are ready to opt out of some very important car insurance benefits and coverages.

Why is it important to set the right IDV in car insurance? 

It is important to understand that a high IDV equals a high car insurance premium. Similarly, low IDV equals a low claim amount in case of major car damage. Thus is it of utmost importance that you set the correct value for your car while buying a Comprehensive Car Insurance Policy.

Let’s take a look at the following example to understand how setting a higher IDV in a car insurance policy can be counterproductive.

Mr. A bought a high-end car worth Rs. 20 lakhs. He is a safe driver who likes to abide by all the necessary traffic rules. Thus, he has a clean driving record and no claims on his name. 

Three years later, the car’s value dropped by 40%, and the ideal IDV was Rs. 19.2 lakhs. But Mr. A still set the IDV at Rs. 20 lakhs. His car insurance premium did not reduce as he had set a higher IDV. 

Since he was a safe and fortunate driver, there were no major accidents in that policy year. Thus the extra car insurance premium paid by him proved to be unnecessary.

IRDAI IDV rules for car insurance 

The Insurance Regulatory and Development Authority of India (IRDAI) regulates all types of insurance companies in the country.  The following will help you understand how IRDAI IDV rules are set for calculating the car’s value in car insurance.

Myths about IDV in car insurance

Here are some common myths about IDV in car insurance.

Myth: You cannot change the IDV suggested buy the insurance company

Fact: You can change the IDV the insurance company does not offer a fixed value. You must select the right IDV from the range suggested by your car insurance company.

Myth: If this is the IDV of my car, it is also the resale value

Fact: The resale value of a car depends upon many factors like the car’s condition, its maintenance schedule, etc. IDV is in no way the indicator of its resale cost.

Myth: Decreasing the IDV will save premium

Fact: Decreasing the IDV will decrease the premium but it will also affect the claim amount in case of a major claim.

Frequently asked questions about IDV in car insurance
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FAQs on IDV in car insurance

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Q1. What is IDV for a new car?

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 published by the Insurance Regulatory and Development Authority (IRDA) of India. 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 5%. 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. Buy a policy that suits your requirements.

Q2. How to choose the best IDV for my car policy?

Here are some tips to decide IDV for car insurance:

  • 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.

  • 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.

  • If you have included accessories in your car, it’s advisable to insure the accessories as well. However, this will increase the IDV and the premium amount accordingly.

Q3. Why does the IDV vary between insurance companies?

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.

Q4. Why do some insurance providers keep the IDV of the car low?

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.

Q5. What is the IDV of a car outside the showroom?

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.

Q6. Will the location of purchase have an impact on the IDV of my car?

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 vary.

Q7. Is there an option to increase the IDV of a car?

Yes, if you are buying a car insurance policy online, you will have an 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.

Q8. Is it a good idea to increase the IDV of my car?

No, increasing the IDV will lead to an increased premium. You should avoid this if the chances of you raising a total loss claim are low as compared to other types of claims.

Q9. What is the meaning of IDV and NCB?

IDV stands for Insured Declared Value while NCB stands for No Claim Bonus. IDV is the approx. current market 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.

FAQs related to IDV and premium

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Q1. How does IDV affect your car insurance premium?

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.

FAQs related to IDV calculation

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Q1. What is meant by the IDV calculator?

IDV calculator is an online tool that helps you to calculate the IDV of your car.

Q2. How can I calculate the IDV of my car?

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. The value you get is the IDV of your car.

Q3. What is the IDV or the depreciation percentage for car insurance every year?

The IRDAI fixes the depreciation rate based on the age of the vehicle. 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.

Q4. Is there a difference in how IDV is calculated for commercial and private vehicles?

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 way for both.

Q5. How to check the insurance value of a car?

The insurance value of a car is based on the Insured Declared Value of the vehicle. Also known as IDV, it is the approximate market value of the car. To check the IDV of a car, you can utilise the car insurance premium calculator, an online tool, to quickly find out the cost of insurance for a car.

FAQs related to renewal

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Q1. What happens during car insurance renewal?

One should not renew their car insurance policy in a haste, as 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.

Q2. I noticed that the IDV of my car reduces at every renewal. Why does this happen?

Each year your car’s value depreciates i.e. reduces due to wear & tear and usage of parts with time. 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.