In the world of automobile insurance, there are many different terms which insurance buyers and automobile owners need to be aware of before selecting any insurance provider and purchasing an auto insurance product. IDV is one such auto insurance concept that needs to be understood thoroughly before moving ahead with an insurance product.
IDV stands for "Insured Declared Value" in insurance, and it represents the maximum amount that an insurance provider guarantees to compensate the vehicle owner or policyholder in the event of damage or loss to the insured vehicle.
Essentially, it is the maximum claimable amount in the form of reimbursement that the policyholder can receive from the insurance provider for any damages sustained by the insured vehicle. The IDV is a crucial factor in determining the coverage and premium of the insurance policy for the automobile under consideration.
It is the maximum amount that the insurance policyholder can make a claim in the form of reimbursement from the insurance provider against any damages that may have been caused to the automobile under consideration.
IDV= Current market value of the automobile being insured.
Whenever an insurance policyholder takes up a comprehensive insurance policy, IDV or Insured Declared Value is compulsorily taken into consideration by the insurance provider. The premium amount to be paid by the insurance policyholder is directly proportional to the Insured Declared Value (IDV) of the vehicle under consideration. When the IDV is high, the premium for the vehicle will also be on the higher side.
The premium in the auto insurance industry in India is typically about 2-3% of the total IDV amount.
IDV is an extremely important factor to consider when you are insuring your automobile and picking between different insurance providers. Here’s what makes IDV in insurance so important:
IDV is roughly calculated by taking the listed price of the automobile as provided by the manufacturer and reducing the depreciation costs of the vehicle for the same, depending on the age of the vehicle. Vehicle registration costs and associated insurance costs are excluded from the IDV calculation.
Typically, whenever you purchase a new automobile, the IDV in insurance equates to about 95% of the car’s ex-showroom price. The depreciation taken into account for a brand-new vehicle is 5% immediately upon purchase. When this 5% is deprecated from the ex-showroom price of the vehicle, we are left with 95% as the IDV. IDV eventually reduces over a period of time, typically year after year, because of the ageing of the vehicle and associated wear and tear of parts across the vehicle. This is called depreciation and it refers to the reduction in the market price or value of your vehicle over a period of time. This makes the IDV of an older car less than that of a brand-new car, and accordingly, the premium is also reduced.
The Motor Tariff Act passed by the Government of India has clearly declared the standard rate of depreciation of IDV in cars which all insurance providers follow. Below you can find the IDV depreciation chart
* Vehicles older than 5 years do not have any stipulated depreciation value. The vehicle in these cases is usually inspected by an official from the insurance provider and then both the automobile owner and the insurance provider arrive at an IDV value through mutual negotiations.
IDV is calculated using a simple formula:
IDV = (Car manufacturer’s listed sale price – vehicle depreciation) + (Car accessories not included in the listed selling price of manufacturer – depreciation for accessories)
This formula excludes vehicle registration costs and associated insurance costs. Accessories that do not arrive with your car ex-showroom are also excluded from the IDV. This is important to note in order to avoid any confusion whenever you are making a claim for damages.
The most important points to keep in mind while calculating IDV are:
For example, a lesser-known brand or an automobile brand that is rarer to find in the market will fetch a lesser market value than a more reputed or premium brand of automobiles. This means premium vehicles tend to depreciate less when maintained well. On the contrary, a more common automobile brand is likely to fetch a lower market value because demand for that brand in the resale market may not be very high. These vehicles can depreciate according to the standard norm set in the Motor Tariff Act.
For example, if you own a premium automobile from a very reputed brand or a luxury brand, then you may be tempted to ignore the market value and opt for the standard depreciation rates for your car, even though it hasn’t depreciated as much from a market perspective. Yes, you will get away with a lower premium to be paid but if you do manage to damage your vehicle, you will get a claim amount that is also proportionately lower, and covering your losses entirely due to damage at this point will be next to impossible.
Your IDV is directly related to your Insurance Premium on the vehicle. What this means is that increasing the IDV will result in an increased premium and decreasing the IDV will result in a reduced premium. This is the main idea behind using an IDV calculator to find the exact value of your automobile in the market. Arriving at the accurate IDV value without manipulating it can help safeguard your own interests in the case of damages arising to the vehicle.
Some key facts about IDV in car Insurance
Understanding the IDV calculation empowers car owners to make informed decisions about their insurance coverage, safeguarding their vehicles effectively. Regular maintenance and safe driving practices also contribute to maintaining the car’s value, maximizing the benefits offered by the IDV in unfortunate events. By utilizing the IDV calculator wisely, policyholders can secure their vehicles and enjoy peace of mind on the road.
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Normally, you insure your vehicle for the accurate IDV value depending on factors like market value and depreciation. Depreciation reduces your IDV every year, meaning the amount of money claimable from an insurance company in the case of damages reduces yearly.
This can be avoided by adding an extra cover to your plan called the bonus zero depreciation cover. When you do this, you pay an extra amount with your premium, but the depreciation on your vehicle stays at zero for the period of the cover. Thus, you will be paying a slightly higher premium every year, but you will be completely covered in the case of total damage to your vehicle in the period being covered by the bonus.
Yes, some insurance companies give you the option of increasing your IDV as a cover on your existing plan. In these cases, again you end up paying a higher premium on the vehicle. Usually, insurance companies tend to cap the increase of the new IDV over the old IDV at 10%.
Calculating the IDV does not need to cost you any money. You can use many of the free IDV calculators online to check the IDV of your car.
IDV should neither be above nor below the accurate market value of the vehicle by a good measure. It must be aligned to the current resale value of the vehicle in order to safeguard yourself in the case of a claim when it comes to damages to the vehicle.
IDV does not include registration costs, additional insurance charges, such as processing fees, or RTO charges.
Total IDV means the total value that you have insured your car for. You can claim the entire IDV value only in the case of the theft of the vehicle or in the case of damages amounting to 75% of the vehicle’s parts. In the case of vehicle theft, an FIR with the local police station is required by the insurance company to validate your claim.
If the car repair cost is higher than the IDV, you as the automobile owner will have to bear the additional repair cost of the vehicle. While the insurance company will get your vehicle repaired at an authorised garage, you may get the additional repairs done by an experienced local or non-authorized mechanic to reduce your additional expenses.
Total loss of a vehicle happens when the cost of repairing the vehicle in order to bring it to its pre-damage condition is much higher than the worth of the vehicle itself. Total loss typically happens under two situations, either theft, or an accident resulting in damage to the vehicle beyond possible usage of the car or repair.
The IDV decreases typically based on the stipulation provided in the Indian Motor Tariff Act. Immediately on purchase, it reduces by 5%, and another 5% after six months. For the next 6 months, it decreases by 15%. Thereon it decreases by 10% every year until it reaches the age of 5 years. Beyond this, it is calculated based on negotiation between the insurance provider and the automobile owner. Use an IDV value calculator for your car to get the most accurate IDV of your vehicle based on all the depreciation parameters.
The IDV of a new car is at 95% of the value of the car, ex-showroom. The depreciation of 5% applies automatically on the purchase of the car, as soon as it rolls out of the showroom with registration.
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