While your car insurance premium varies as per the plan you choose, there are several underlying facts that you must be aware of before buying motor insurance. Aside from picking between a third-party versus comprehensive insurance, it would be best if you also kept an eye on your vehicle’s Insured Declared Value or IDV. But what is IDV, and how does it impact your insurance premium?
IDV is the maximum amount for which your vehicle is covered and the sum that the motor insurance provider will pay you in case of irreparable damage or theft. At times, your four-wheeler might suffer irreparable damage due to natural disaster, collision, or accident. It may be stolen from your garage or elsewhere. In such cases, the insurer will pay a sum close to the IDV. The exact value of IDV is not reimbursed because the depreciated value of your vehicle from the time when IDV was declared to the point where your vehicle suffered a total loss will be taken into consideration.
How is IDV calculated?
To begin with, let us first know how IDV is calculated.
IDV = (The selling price of the car listed by your manufacturer – depreciation) + (Accessories not included in the listed selling price of your vehicle – depreciation)
The calculated IDV does not include registration fees or taxes paid.
To set the correct insured value (IDV), here is a step-by-step guide:
Step 1:
Before modifying the IDV for your car, compare and determine the best IDV for several insurance companies. The method of calculating IDV adopted by insurance companies might vary slightly. Therefore, it is wise to get the best IDV available in the market for your vehicle.
Step 2:
If you want to extend your car insurance online, you will receive an offer with your IDV. You can also use the IDV calculator available on the many insurance websites to determine the appropriate IDV yourself. After calculating the IDV you can compare it with your quote.
Step 3:
Most insurers provide a range of IDV and you can choose a value in between this range. However, don’t think that a higher IDV will provide you with a higher compensation after an accident. IDV is the maximum compensation price, but the insurer can consider other factors to evaluate the compensation value. Also, for a higher IDV, you will need to pay a higher premium. You may think that choosing a lower IDV might lower your premium. While it is true, we would not recommend you to do so as it will reduce the compensation in an accident, theft, or irreparable damage. Therefore, the best decision would be to go for the IDV that is approximately equal to the current market value of your four-wheeler.
Step 4:
Alternatively, you can estimate the car’s IDV according to the above formula and take a balanced approach. You don’t have to choose the exact number as you can round off the number.
Step 5:
Call your insurance company for advice if you’re having trouble deciding which IDV is suitable for your car.
While setting the IDV for your four-wheeler, an insurance company takes two things into consideration:
Latest selling price –
The latest market value of your car as determined by the four-wheeler manufacturer.
Depreciation –
The depreciated value of the four-wheeler is subtracted from the actual IDV to reach the final IDV at the time of compensation. Depreciation is usually calculated as a percentage. A higher depreciation is set as the vehicle gets older. The below table will shed some insights into how depreciation increases with the age of a four-wheeler:
| Vehicle’s age | Depreciation considered for evaluating the final IDV |
| Greater than 4 but less than 5 years | 50% |
| Greater than 3 but less than 4 years | 40% |
| Greater than 2 but less than 3 years | 30% |
| Greater than 1 but less than 2 years | 20% |
| More than 6 months but less than 1 year | 15% |
| Age below 6 months | 5% |
It is necessary to set up the correct IDV for your car insurance as this is the only way to ensure that you get the best claim in case of a mishap. That said, the best car insurance in India may not necessarily be the one with the highest IDV, as other factors like the type of insurance, claim settlement ratio, and many other aspects come into play.
An insurance company usually does not cover a vehicle older than 5 years. The depreciation cost is too high to justify the insurance premium borne by the insured. Therefore, it is recommended that you get a car insurance policy for your four-wheeler before 5 years. Also, take proper care of your vehicle by regularly taking it to a garage for inspection and repair. If your car is in prime condition while applying for insurance, it may fetch a higher IDV.
