All About IDV in Car Insurance

Car insurance is not just a complicated but intimidating matter to many people. The industry jargon and terminologies make it a tough-to-conquer subject for those who lack interest in the topic. However, you can easily get over your apprehension by understanding the basic terminologies such as Insured Declared Value or IDV. 

Today, we will focus on what is IDV in car insurance and why it matters.

What is Insured Declared Value?

Insured Declared Value (IDV) in car insurance is the amount you will receive from your insurer in case you face total damage of your car or it is stolen. IDV is set at the time of policy purchase. It directly affects the premium amount—the higher the IDV, the more will be the premium amount and vice versa. IDV of your car changes with the depreciation rate. As the car depreciates, the IDV keeps coming down.

When you buy motor insurance, insurance companies calculate the premium amount based on your car’s IDV and some other factors. The insurers determine the value of your car via the original equipment manufacturer’s (OEM) selling price of the insured car, and the vehicle’s age, brand, and model. Moreover, depreciation is adjusted for IDV calculation.

Besides, insurance and registration costs are not included in the IDV value. Additionally, the cost of car accessories that are not offered by the manufacturer is calculated separately if you are purchasing insurance for accessories.

Here is the standard rate of depreciation as stated in the Motor Tariff Act:

For cars up to 6 months old: 5%

For cars that are 6 months to 1 year old: %

For cars that are 1-2 years old: 20%

For cars that are 2-3 years old: 30%

For cars that are 3-4 years old: 40%

For cars that are 4-5 years old: 50%

For cars that are 5 years old and above: Negotiable

It is important to note that depreciation is not fixed while calculating IDV for vehicles that are more than five years old. Here, the insurer will inspect the condition of the vehicle and then both the insurer and policyholder will have to agree upon the IDV.

The formula for IDV calculation

Upon purchasing a new car, the IDV is determined as per the manufacturer’s selling price while accounting for depreciation. The formula to calculate IDV in car insurance is:

  • Fitted with accessories

IDV = (OEM’s selling price – depreciation charges) + (cost of accessories - depreciation rates of the given accessories).

  • Sans accessories

If you do not add any accessories to your car, then the formula stands as:

IDV = (OEM’s selling price – Depreciation rates)

Things to remember when calculating IDV

  • Always set the IDV close to the original value of the car. 
  • If you understate the IDV in car insurance, you will receive a lesser claim amount than you actually deserve, thus increasing your losses. 
  • By overstating the IDV value of your car, you will end up paying a higher premium. And, you will receive compensation as per the type of loss and not the entire IDV.

Factors determining the IDV of a car

Some factors that have a direct effect on your car’s IDV are:

  • Type of car

Depending on whether you have a sedan, hatchback or an SUV, your IDV value differs. Hatchbacks are cheaper than SUVs and sedans; therefore, their IDV value will be much lesser than that of a sedan or SUV.

  • Car model

Different car models of the same type can have varying sIDVs. It depends on the features of the car as offered by the manufacturer.

  • Location of purchase

The cost of a car differs as per the location of purchase. For instance, the ex-showroom price of the same model of the car varies in Delhi, Chennai, Mumbai, and Kolkata.

  • Depreciation

Depreciation is the fall in the monetary value of a car as per age. For older cars, you have to pay higher depreciation. This means that two cars of the same model will have varying IDVs if they are manufactured in different years.

  • Accessories

Depreciation on accessories is taken into account while calculating the IDV value. This value changes as per the age and condition of the accessories.

How is IDV and policy premium related?

  • Applicable only on comprehensive plans

IDV in car insurance is the primary component of comprehensive motor insurance policies. Also, you do not have to declare the IDV when purchasing a third-party policy since the car is not being insured for own damages. Third-party car insurance provides cover for third-party liabilities only.

  • Directly impacts the premium amount

When you buy motor insurance, adjusting IDV can increase or decrease the premium amount accordingly. In case you increase the IDV, the premium amount goes up. Similarly, upon reducing the IDV, the premium amount goes down.

So, always set the right IDV in car insurance to ensure you stay protected in the event of the total loss of your car. You can use this compensation to replace your completely damaged or stolen car.

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