Idv: Vehicle Insurance's Claim Value

Insured Declared Value (IDV) is an important concept in car insurance. It refers to the current market value of your vehicle and is the maximum sum assured payable by the insurer in the event of theft or total loss of the insured vehicle. In other words, it is the maximum amount that an insurance company will pay to the insured in the event of a claim. IDV is calculated based on the manufacturer's listed selling price minus depreciation and is an important factor in determining the premium of a car insurance policy. A higher IDV will result in a higher premium, while a lower IDV will lead to a lower premium. It is important to note that declaring a lower IDV to reduce the premium can result in inadequate compensation in the event of a claim. Therefore, it is crucial to select the right IDV that accurately reflects the market value of the vehicle.

How is IDV calculated?

The IDV, or Insured Declared Value, is calculated based on the current market value of the vehicle minus depreciation. The formula for calculating IDV is:

IDV = (Company’s listed price – the depreciation value) + (cost of vehicle accessories - the depreciation value of these parts)

If the car does not have any extra accessories, the formula is:

IDV = Manufacturer’s registered price – the depreciation value

The depreciation value is based on the age and condition of the car. The insurance company follows a standard depreciation schedule, with the applicable depreciation value subtracted from the manufacturer's registered price to arrive at the IDV. For example, if a car has a manufacturer's registered price of 10 lakh and is two years old, with a depreciation value of 20% (2 lakh), the IDV will be 8 lakh.

The IDV calculation also depends on whether the car has any additional accessories installed. Any modifications or accessories added to the car will increase its value and reflect on the IDV. The cost of accessories that were not fitted by the manufacturer at the time of delivery will be calculated as an additional cost.

The IDV of a vehicle is crucial in determining the premium for a car insurance policy. A higher IDV will result in a higher premium, while a lower IDV will lead to a lower premium. It is important to note that the IDV should be as close as possible to the current market value of the car to ensure adequate coverage in case of total loss or theft.

The IDV of a car is also influenced by factors such as the age, make and model, geographical location, and condition of the vehicle. The IDV of older cars will generally be lower due to depreciation, and the make and model determine the IDV as different brands and models have different values. The location of the car can also impact the IDV, with cars in urban areas potentially having a higher IDV due to a higher cost of living and car prices.

When calculating the IDV, it is important to provide accurate information and not underestimate or overstate the value to avoid insufficient coverage or paying higher premiums.

How does IDV affect your insurance premium?

IDV, or Insured Declared Value, is the current market value of your vehicle. It is the maximum amount that an insurance company will pay out in the event of a total loss, constructive total loss, or theft. For example, if your vehicle's market value is set at Rs. 7 lakhs at the start of the policy, the maximum amount the insurance company will compensate you will be Rs. 7 lakhs.

The insurance premium payable is directly proportional to the IDV. Therefore, the higher the IDV, the higher the premium. Similarly, as your vehicle ages, the premium decreases. Within six months of purchasing a new car, the value of the vehicle depreciates by 5%. A car that is 4 to 5 years old will be charged a depreciation of 50%.

While it may be tempting to opt for a lower IDV to reduce the premium, this is not advisable as it will result in a lower compensation amount in the event of total damage or theft claims. The goal is to get an IDV that is closest to the market value of your car without paying enormous amounts as a premium.

On the other hand, increasing the IDV will result in a higher premium. However, this also has its drawbacks. You may never need to raise a total loss claim, and you will incur a loss by paying more money than required.

The ideal IDV should be close to the market value of the car. It should be sufficient to provide adequate coverage for your vehicle.

What is the ideal IDV?

The ideal IDV is the approximate market value of the vehicle at the time of buying car insurance. It should be close to the market value of the car, providing sufficient cover in the event of a claim.

The IDV is the maximum sum insured fixed by the insurer, which is provided in the event of theft or total loss of the insured vehicle. It is the current market value of the vehicle, usually estimated based on the manufacturer's listed selling price of the model and variant of the vehicle, including additional accessories. It is important to insure your vehicle for the right IDV, as this will be the maximum amount of compensation you will receive in the event of theft or total loss.

The IDV of a vehicle is dependent on several factors, including the age of the car, the make and model, the type of car, and the location of registration. The older the car, the lower the IDV will be. The make and model of the car will determine how high-end the vehicle is and, therefore, how high the repair costs are likely to be. The type of car, such as a hatchback, sedan, SUV, or MUV, will also influence the IDV, as certain types of cars have a higher value than others. The location of registration can also play a role, as the ex-showroom price varies between cities.

It is important to note that a higher IDV will result in a higher premium, and a lower IDV will lead to a lower claim settlement. Therefore, when determining the ideal IDV, it is crucial to find a balance between these factors to ensure adequate coverage without paying an excessive premium.

Advantages and disadvantages of a high/low IDV

Advantages and Disadvantages of a High IDV

A high IDV (Insured Declared Value) means that your insurance provider will pay out more if your vehicle is damaged beyond repair or stolen. This is because the IDV is the maximum sum insured fixed by the insurer, and a higher IDV will result in a higher premium. Here are some advantages and disadvantages of a high IDV:

Advantages:

• You will receive a higher compensation amount during theft or total loss claim settlement, which can help cover the cost of a replacement vehicle.
• You will get enough funding to buy a new car in case of vehicle theft or total loss.
• Your insurance policy will have a higher sum insured.

Disadvantages:

• You will have to pay a higher premium amount, which can be a significant financial burden, especially if you are on a tight budget.
• If you never need to raise a claim for total loss, you may never fully benefit from the high IDV.
• You will incur a loss by paying more money than required.

Advantages and Disadvantages of a Low IDV

On the other hand, a low IDV will result in a lower premium. This is because the IDV is directly proportional to the premium of your car insurance policy. However, a lower IDV also means that you will receive a lower compensation amount in case of theft or total loss. Here are some advantages and disadvantages of a low IDV:

Advantages:

• You will have to pay a lower premium amount, which can result in significant savings over time.
• You can use the money saved for other purposes, such as buying insurance riders to enhance the scope of your coverage.

Disadvantages:

• You will receive a lower compensation amount during theft or total loss claim settlement, which may not be sufficient to cover the cost of a replacement vehicle.
• If the accidental damage expenses are higher than the IDV, you will have to pay for them out of your own pocket.
• You will suffer a loss due to the lower claim amount.

How to choose the right IDV for your vehicle

The Insured Declared Value (IDV) of your vehicle is extremely important as it determines the amount of compensation you will receive in the event of theft or total loss. It is also a key factor in calculating the premium of your insurance policy. Therefore, it is crucial to set the correct IDV for your vehicle when taking out or renewing your car insurance policy. Here are some tips on how to choose the right IDV:

• Understand the calculation of IDV: The IDV of your vehicle is calculated based on its current market value, which includes the manufacturer's listed selling price of the brand, model, and variant of the vehicle, as well as any additional accessories. This amount is then adjusted for depreciation as per the standard rates stipulated by the Motor Tariff Act or the Insurance Regulatory and Development Authority of India (IRDAI).
• Use an online IDV calculator: Utilize an online IDV calculator provided by insurance companies to get a near-accurate estimate of your vehicle's IDV. These calculators take into account various factors such as the age of the vehicle, make and model, standard depreciation rates, and additional accessories to determine the ideal IDV for your car.
• Consider the age of your vehicle: The age of your vehicle is a significant factor in determining its IDV. As a vehicle gets older, its market value decreases due to depreciation. Therefore, an older car will have a lower IDV compared to a newer one, even if they are the same type, make, and model.
• Evaluate the make and model: Different car brands and models have different values, even if they are the same type (e.g. hatchback, sedan). Higher-end vehicles will typically have a higher IDV due to their higher cost and maintenance requirements.
• Location of registration: The city where your vehicle is registered can also impact its IDV. The ex-showroom price of a vehicle can vary between cities, which in turn affects the IDV.
• Accessories: If you have added any accessories to your vehicle that are not factory-fitted, their depreciated cost can be included when calculating the IDV. This will increase both the IDV and the premium amount.
• Avoid understating or overstating IDV: Do not understate the IDV to reduce your premium, as this will result in lower insurance coverage and inadequate compensation in the event of a claim. Similarly, do not overstate the IDV expecting a higher claim amount. The claim amount depends on the type of loss and not solely on the IDV.
• Research and negotiate: Do your research on the current market value of your vehicle and check with the manufacturer before agreeing to the IDV set by the insurance company. You can also negotiate to get the desired IDV that aligns with the market value of your vehicle.
• Consider your budget: If you have an older vehicle with a low market value or are working with a specific budget, you may consider setting a lower IDV. However, keep in mind that this will result in a lower claim amount in case of total loss or theft.
• Adjust IDV when renewing: When renewing your car insurance, take the opportunity to adjust your IDV if needed. Ensure that the cost of the premium is determined based on the correct IDV to avoid paying an exorbitant premium for a vehicle with a high market value compared to its IDV.

Frequently asked questions