When it’s time to renew a car insurance policy, many exciting offers start pouring in from different insurers. Some policyholders might also start comparing premium quotes from various insurers. While there is nothing wrong with it, one should be extra vigilant while doing so. Remember, the insurer may quote you a lower premium, but at the same time, the Insured Declared Value (IDV) might also be kept low.
Car accidents, breakdowns, and repair can have a major impact on your finances if you don’t have a comprehensive car insurance. However, in order to get the proper coverage, you need to be properly insured. You also need to be aware of what you’re paying for. That’s where the Insured Declared Value (IDV) comes into the picture.
What is IDV?
In simple words, IDV is the market value of your vehicle. It points towards the highest claim amount that your insurer will pay in case of a claim. It would be in the event of:
- Total loss (the vehicle is no longer capable to run on roads)
- Constructive loss (the total repairing cost of the vehicle is more than 75% of IDV)
- Vehicle is stolen
For instance, if the IDV of your car is Rs 10 lakhs, the maximum amount that the insurer would compensate for you is Rs 10 lakhs.
The IDV doesn’t consider the accessories that have been fitted later in your vehicle and not at the time of the buy.
How to compute IDV?
In order to calculate the IDV of a vehicle, the insurer uses the following checklist and then adjust the same with the depreciation rate as per the Indian Motor Tariff.
- Car registration details
- Current registration type-company owned or personal
- Manufacturer and model of a car
- Cubic capacity
- Vehicle description
- Ex-showroom price (the actual price of the car plus the sales tax)
The premium of a car insurance is directly proportionate to the IDV of your vehicle. The IDV depends on the manufacturer’s selling price and brand, which is then adjusted for depreciation. More the age of the vehicle, the higher is the depreciation amount.
As per the Motor Tariff Act, the standard depreciation rates are as follows:
|Age of the vehicle||% depreciation for computing IDV|
|Up to 6 months||5%|
|6 months to 1 year||15%|
Here is the formula for computing IDV: IDV= Manufacturer’s listed selling price+ Sales Tax+ Accessories – (depreciation +registration costs+ insurance costs)
IDV of a new car
Initially, when you decide to purchase a car, the IDV is decided on the basis of the manufacturer’s listed selling price of the vehicle’s model. In the case of a new car, the IDV is decided on the basis of the manufacturer’s listed ex-showroom price minus depreciation. Usually, the depreciation rate is 5%, and hence by default, the maximum IDV would be 95% of the ex-showroom price of the vehicle.
The moment you drive your car out of the showroom, the IDV starts decreasing. Within first six months of buying the vehicle, the IDV depreciates by 5% and can reach to 50% for a car aged five years.
IDV during the policy renewal
At the time of renewing the policy, the premium is calculated on the basis of the depreciated value of the vehicle. However, a policyholder has the right to fix the IDV. The limitation and the maximum cap can vary from one insurer to another.
In the case of a car more than five years old, the IDV is decided as per the mutual understanding between the insurer and the policyholder. Usually, in the case of a car which is more than five years old, the IDV depends on the following factors:
- Car model
- Availability of spare parts
Points to consider while calculating IDV
The IDV of your vehicle can fall in a particular range based on the ex-showroom price which the insurer has considered. As the car owner, not knowing the correct IDV of the vehicle might result in a lesser compensation in the event of a claim
Therefore, it is imperative to know the correct IDV. If you understate the IDV by quoting a figure lower than the market value of your vehicle, you may have to pay a lesser premium amount, and it also means that you will get a lower insurance cover. And if accidental expenses are more than the IDV, you would’ve to pay the remaining amount from your pocket.
Similarly, by quoting a higher IDV in the hope of getting the higher claim amount means wastage of money. A higher IDV will not fetch you a higher claim amount or a higher price if you sell your car.
In the case where both the policyholder and the insurance company have agreed upon a higher IDV, the latter can’t deny the claim on the basis of the IDV. However, a higher IDV might not be binding on the insurer if it is proved that it is done with the intention of fraud.
In certain cases, the claim can be equal to the IDV of the vehicle. In the case of a car theft or if the damage is over 75% of the IDV, the compensation received can be equal to the IDV.
Points to consider
- The value of your car changes every year, and therefore, at the time of renewal, don’t go just by premium. Check the correct IDV that you get for that premium
- Don’t try to save premiums by reducing the IDV
So, what should you do now?
Sometimes, insurers put different values to the IDV of a vehicle, and it brings a slight difference in the premium that you might have to pay. However, one should renew their car insurance with the insurer who offers the most optimum IDV at the right premium amount.
You buy car insurance to insure your vehicle from all types of losses or damages. Therefore, always get insurance on a full IDV, as it is the amount that the insurer would give you at the time of claim. Also, once you receive the policy document, cross check to see if the values are same as agreed upon.