When your car insurance comes up for renewal at the end of the year, it is essential to evaluate the Insured declared value or IDV. Majority of customers look towards paying lower premiums leading to decreased insurance value. IDV is the total amount that the insurance provider will pay to you in case of theft or accident. Vendors evaluate the value based on the guidelines of IRDAI. A car not older than six months would attract 5% depreciation. It means that if the price of the car is Rs 10,00,000, you can avail Rs 9,50,000 as max insurance amount in case of theft or total constructive loss.
Importance of IDV (Insured Declared Value)
To own an insurance cover is important as it helps to compensate the owner in case the vehicle is lost or completely damaged beyond repair due to an accident. The premium for the cover depends on a cumulative percentage of the IDV and ranges between 2 to 3% of the total amount. Therefore, without knowing the IDV, it is not possible to calculate the damage cover for any vehicle.
How is IDV Estimated?
IDV of a motor vehicle is estimated based on the applicable depreciation. Depreciation is applied to the ex-showroom price (vehicle price sans taxes) of the vehicle. The older the vehicle the higher the depreciation.
|Age of Vehicle||% Depreciation|
|Not exceeding 6 months||5%|
|Exceeding 6 months but not exceeding 1 year||15%|
|Exceeding 1 year but not exceeding 2 years||20%|
|Exceeding 2 years but not exceeding 3 years||30%|
|Exceeding 3 years but not exceeding 4 years||40%|
|Exceeding 4 years but not exceeding 5 years||50%|
Therefore, if you bought a car for Rs. 700,000 four years ago. The IDV for your vehicle now will only be Rs. 350,000.
Car owners do not wish to shell out a higher premium for the vehicle. They might optimise expenses but cannot claim a higher compensation amount in case of a heavy accident.
On the other hand, some people think that declaring higher IDV can help them to not only fetch a higher compensation but also increase the market value of the car. IDV cannot increase indefinitely, but it is the maximum amount that an insurer is willing to pay the owner in case of accidents. Always look for Car insurance quotes nearer to its market value.
Mode of calculation:
The calculation of IDV in a car insurance takes place with the help of agreement between the insurance company and the vehicle owners. In other words, the insured value depends on car model and the availability of the spare parts.
The insurer checks the listed selling price of the brand and the model of the car. Apart from selling prices, the insurer also considers the listed price of any accessory after deducting the depreciation after every year.
According to Indian motor tariff rule, cars, up to 5-year-old attract depreciation of 50% while those with three years of timeline carry 30% depreciation tag.
You should check the IDV value of the car at the time of policy renewal and not pay what the insurers demand. If you do not agree with the figures, then you can always switch over to another insurance company.
Before buying the insurance, do keep an eye on the IDV to get the required insurance coverage. Insurance companies treat the car as an object of depreciation; therefore, they try to reduce the value of compensation.
IDV is not the yearly claim limit:
- It is a misconception; the car owner can claim up to the IDV amount in a year. This is not true; the car owner can make an unlimited number of claims in a year.
- For every claim a fixed deductible is applicable. It can be a standard amount for example, Rs 1000 or Rs 2000, or a percentage of total claim.
- Insurer never decides the value of third party cover, but the own vehicle damage is well within their rights. Once the car is older than five years, the insurer and the car owners must mutually thrash out the details. Well maintained vehicles may still enjoy insurance cover.
- If you are planning to purchase a car, it is vital to talk to consultants and experts. They can provide detailed information about the depreciation and the way it affects the future IDV figures.
Car owners should not take extreme positions regarding IDV because it can adversely influence the compensation amount. In the worst-case scenario, you may not get suitable risk coverage because insurers can provide cover only up to a maximum amount. It decreases over a period depending on the market value of the car. As the car ages, the value of the IDV goes south. However, your negotiating skills and condition of the vehicle can fetch a better deal. Suitable IDV amount is essential to get required risk coverage without paying a sky-high premium. It is a wise step when you are facing accidental damages. Therefore, it is wise to increase the IDV, however, do not go overboard with the amount.