A comprehensive motor insurance cover prevents your financial situation from getting severely affected in the event of your car getting involved in an accident. An accident can result in your car getting severely damaged or destroyed. There are also times when the car is damaged beyond repair and has to be declared a total loss.
When a car is declared a total loss or is stolen, then the motor insurance company pays the insured the Insured Declared Value or IDV. In layman's terms, IDV can also be called the current market value of your vehicle.
The definition of IDV
IDV is the maximum amount that the insured can claim from the vehicle insurance company in the unfortunate event of their car being stolen or declared a total loss. The value is based on the manufacturer’s selling price and is arrived at by deducting the depreciation of the vehicle. Furthermore, the IDV is solely the value of the vehicle as well as the accessories fitted, and does not cover the cost of insurance or registration.
How is it calculated?
The vehicle insurance company calculates the Insured Declared Value based on several data points. Most of these data points are found in the Registration Certificate of the vehicle. Information such as the city of registration, date of registration and type of registration can be found on this certificate; apart from other details of the vehicle like the make, model, cubic capacity and ex-showroom price.
Percentage of depreciation
As the age of the vehicle increases, the percentage of depreciation also increases. In fact, depreciation kicks in as soon as the vehicle leaves the showroom. The Insurance Regulatory and Development Authority of India (IRDAI) has stated that the maximum declared value of the vehicle cannot be more than 95% of its showroom price.
This means that depreciation takes away 5% from the showroom value of the vehicle, the minute it leaves the showroom, and this percentage stays till the vehicle is 6 months old. After that, the motor insurance company calculates the depreciation based on the following chart.
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Age of the Vehicle
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Applicable Depreciation on Showroom Price (in %)
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Less than 6 Months
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5%
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6 Months - 1 Year
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15%
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1 Year - 2 Years
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20%
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2 Years - 3 Years
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30%
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3 Years - 4 Years
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40%
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4 Years - 5 Years
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50%
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If the age of the vehicle exceeds 5 years, then depreciation is not factored into the calculations. The IDV is computed on the basis of a report prepared by a dealer or surveyor, which is mutually agreeable to the insured and insurer, depending on the condition of the vehicle.
Importance of declaring correct IDV
The insurance premium for Own Damage (OD) cover is directly proportional to the Insured Declared Value of the vehicle. In an effort to lower the premium amount, some people declare or accept a lower IDV. But this move can cost them when the time comes for filing a claim.
Declaring a lower value for IDV will lead to a lower claim amount, since IDV is the maximum amount that is payable by the vehicle insurance company in case the car is damaged beyond repair.
Factors affecting the IDV of car
Several factors influence the IDV during car insurance renewal:
- Age of the car: Older vehicles have higher depreciation, resulting in lower IDV.
- Make and model: Premium vehicles generally have a higher IDV.
- Location: Urban areas may have higher IDV due to demand and vehicle usage patterns.
- Accessories: Fitted accessories that are not part of the ex-showroom price can add value to IDV.
- Insurance provider’s evaluation: Different insurers may offer slightly different IDVs based on their internal valuation metrics.
IDV and car insurance renewal
IDV of a new vehicle is based on the selling price listed by the manufacturer for that particular model. But when it comes to renewal, the IDV is calculated with the current applicable depreciation in mind. The owner is also given a free hand to say what he thinks the IDV should be, however, the maximum limit that he can give will be dictated by the policies set by the insurer.
The Insured Declared Value is an integral factor in the calculation of the vehicle insurance premium. The maximum IDV is obviously available only on a new car, and it decreases as the car gets progressively older. But, there are add-on covers offered by insurers that negate the effect of depreciation for a slight rise in premium.
The next time you purchase a car insurance policy, this cover is something that you can consider. Opting for this cover with your comprehensive vehicle insurance policy will not only ensure that any damages to your car are covered, but the full invoice value of the car is paid out in the event of a total loss.
Frequently asked questions
- What is the IDV of a newly purchased car?
The Insured Declared Value (IDV) of a brand-new car is typically calculated by subtracting the applicable depreciation from its ex-showroom price. For a more precise estimation, you can use a car insurance premium calculator, which also functions as an IDV calculator. It will generate a quote showing the estimated IDV, which you can adjust up or down based on your preferences.
- Is it possible to receive full compensation without factoring in depreciation?
Yes, it is. By choosing the Return to Invoice or New Vehicle Replacement add-on cover, you can bridge the gap between the IDV and the actual on-road cost of your vehicle. This ensures you receive compensation close to the original purchase price in case of total loss or theft.
- Is the IDV different for commercial and private vehicles?
IDV is determined by factors such as the vehicle’s type, current market value, age, depreciation rate and installed accessories, not by whether it is used for commercial or private purposes. You can check the IDV for both types of vehicles using an online calculator tool provided by most insurers.
- Can I choose a lower IDV to save on the premium?
Yes, but it is not recommended. Lower IDV means lower compensation during claims, which may not cover your actual loss.
- Does IDV apply to third-party insurance?
No, IDV is applicable only to comprehensive car insurance, and it does not apply to third-party policies.
- Does IDV change every year?
Yes, IDV decreases every year due to depreciation of the car’s value.
Conclusion
Understanding the concept of Insured Declared Value (IDV) is crucial when purchasing or renewing car insurance, especially a comprehensive car insurance policy. IDV impacts the premium amount and also decides the claim amount in case of a mishap. Always declare the correct IDV to ensure your car is protected at its true value and to enjoy peace of mind on the road.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It may contain outdated data and information regarding the Insurance industry and products. It is advised to verify the currency and relevance of the data and information before taking any major steps. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.