Car insurance is a contract between the owner of the car and an insurance company that serves to safeguard your vehicle from several unforeseen risks such as loss due to theft, accidents, or natural disasters.
Insured Declared Value (IDV) in Car Insurance
For any new or used car to be legal in India, it needs to be covered under a valid car insurance policy. Apart from that, the mere fact of knowing that your car is insured against any unforeseen event will give you peace of mind. While purchasing or renewing a car insurance policy, you pay a certain amount as a premium to the insurance company. There are various factors that decide the premium amount of your car insurance policy, and IDV or Insured Declared Value is one of the most significant factors.
What is IDV in car insurance? Why is IDV important ?
Insured Declared Value (IDV) is the sum insured of the vehicle at the beginning of the policy. It is the maximum amount that policyholders will get when they make a claim on a car insurance policy. Simply, it is the current market value of your car. If your car is stolen or gets severely damaged to an extent where it is beyond repair, the car insurance claim amount payable to you by your insurer is then calculated based on IDV. Hence, it is crucial to insure your car with the right IDV.
The IDV can be calculated with the following formula:
IDV (Insured Declared Value) = Ex-showroom price – Depreciation %
Key factors that influence your car insurance IDV
The IDV of a car is usually calculated based on the following key factors:
• Type of car:
Cars come in various types, from hatchbacks to sedans and SUVs etc. Therefore, the IDV calculated for each type differs from the other. Generally, SUVs attract higher value than sedans, and sedans have a higher value than hatchbacks.
• Make and model:
The make and model can be a deciding factor for calculating IDV since higher-end cars have higher IDV than lower-end cars due to the difference in repair and maintenance costs.
• Depreciation:
Depreciation is a decrease in the car's value due to wear and tear. As soon as you take the car out of the dealership, it starts depreciating. Hence, an older car has a lower IDV than a new car.
Other factors that may affect the calculation of an IDV can be -Place of registration, Accessories, Age of the car etc.
Why is calculating the right IDV important?
There is a direct correlation between the IDV of your car and your car insurance premium. The higher the value of IDV, the more the premium will be. For old cars, the IDV is usually lower, therefore the low amount of the premium.
However, it is crucial that you calculate the right amount for IDV, as opting for a lower IDV just to reduce your cost of the premium is not advisable, as it may prove to be non-beneficial and result in a loss if your car is stolen or meets with an accident and is totally damaged, the insurance company will only pay you the amount of IDV decided at the beginning and as per other policy conditions.
Hence, it is highly recommended to calculate the IDV of your car properly while buying or renewing your car insurance policy. Choosing the IDV that is near the market value of your car is advisable.
How to calculate IDV for car insurance?
The Insured Declared Value (IDV) represents your car’s current market value and forms the basis for your insurance coverage. Calculating IDV is simpler than it sounds, as it primarily depends on your car’s ex-showroom price and its depreciation over time.
Step 1: Understand Depreciation
As per IRDAI guidelines, insurers follow a fixed depreciation schedule based on the vehicle’s age:
Vehicle Age | Depreciation % |
Less than 6 months | 5% |
6 months – 1 year | 15% |
1 – 2 years | 20% |
2 – 3 years | 30% |
3 – 4 years | 40% |
4 – 5 years | 50% |
More than 5 years | Depreciation is mutually decided by insurer and insured, usually 50% or more, depending on the car’s condition |
Step 2: Apply the Formula
The basic formula for calculating IDV is:
IDV = Ex-Showroom Price – Depreciation
Step 3: Include Accessories (if any)
If your car has non-factory accessories, their depreciated value is added separately:
IDV = (Ex-Showroom Price – Depreciation) + (Cost of Accessories – 50% Depreciation)
Note: Factory-fitted accessories are already included in the ex-showroom price.
Choosing the right IDV ensures your premium is fair while providing adequate coverage in the event of theft, damage, or total loss. Regularly updating your IDV can help avoid under-insurance or overpaying on premiums.
How to calculate the cost of vehicle depreciation?
Depreciation is the reduction in your vehicle’s value over time and plays a key role in calculating its IDV. The rate of depreciation is standardised under the Motor Tariff Act as follows:
Age of Vehicle | Depreciation % |
6 months and below | 5% |
6 months – 1 year | 15% |
1 – 2 years | 20% |
2 – 3 years | 30% |
3 – 4 years | 40% |
4 – 5 years | 50% |
Relation between a car’s IDV and its insurance policy premium
The Insured Declared Value (IDV) directly impacts your car insurance premium. A higher IDV means the insurer’s maximum payout in the event of theft or total loss is higher, which increases the premium. Conversely, a lower IDV reduces the premium but also lowers the claim amount. Choosing the right IDV ensures a balance between affordable premiums and sufficient coverage, protecting your vehicle without overpaying for insurance.
Conclusion
The Insured Declared Value (IDV) serves as the cornerstone of your car insurance policy, representing your car’s real-time worth. Selecting the correct IDV ensures you’re neither underinsured nor overpaying for coverage. When buying or renewing your car insurance with Zurich Kotak, always choose an IDV close to your car’s market value for fair, comprehensive protection against total loss or theft.
Frequently asked questions
1. Is the IDV value significant in car insurance?
Yes. The insured declared value (IDV) represents your car’s current market value and sets the maximum claim amount for theft or total loss. It is a key factor influencing your insurance coverage and settlement.
2. What is the significance of IDV?
IDV determines both your insurance premium and the claim payout. It reflects the depreciated value of your car at the start of the policy, ensuring you are neither overpaying for premiums nor underinsured.
3. Where can I find an IDV calculator for car insurance?
Most insurers and insurance portals provide online IDV calculators. These estimate your car’s IDV based on make, model, age, and accessories, helping you choose accurate coverage.
4. Do the IDVs differ between commercial and private vehicles?
Yes. Commercial vehicles typically have higher depreciation rates and greater usage, resulting in IDV values that differ from those of private cars.
5. Is a higher IDV more beneficial?
A higher IDV increases the maximum claim amount but also raises your premium. It is best to set your IDV close to your car’s actual market value for a balanced premium and coverage.
6. What happens if I understate my IDV in car insurance?
Understating your IDV lowers your premium but also reduces your claim payout in case of theft or total loss, which can result in financial loss.
7. Can I claim an amount exceeding the IDV?
No. The maximum claim for total loss or theft cannot exceed the insured declared value agreed at policy issuance.
8. How does IDV differ from the market value of a vehicle?
IDV is the depreciated value agreed at policy inception for insurance purposes, whereas market value can fluctuate based on demand, condition, and other factors over time.
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