What is an IDV Calculator?

What is an IDV Calculator?

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.

What is IDV in Car Insurance?

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.

Importance of IDV in Insurance

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:

  1. The Insured Declared Value is one of the most important factors that determines the coverage amount and thereby, the quote for the premium for the auto insurance being taken. The IDV is reduced every year as the car ages, and the premium also thereby reduces accordingly. If the car is new, or an expensive model, you can expect the IDV to be high, and the premium to follow suit and be high initially. This is because there is a higher amount for the insurance provider to cover in case of any damages.
  2. In the case that the automobile suffers some sort of damage, which you are planning to make a claim for from the insurance provider, the insurance provider will first make an assessment of the damages on the car through one of their verified garages across the country. This gives them an idea of the total expenses from their end with regard to the claim. Then, they disburse the claim amount based on the damages covered by the policy and the Insured Declared Value (IDV) of the car. In the case that the vehicle has suffered damages of 75% or more, the insurance provider tends to pay the entire IDV amount for a claim.
  3. For insurance companies, whenever the IDV in insurance is higher, it exposes the company to greater risk because of the higher market price of the car.
  4. In many cases the insurance provider is ready to reach a consensus with the policyholder and they agree upon an undervalued price of the car. This reduces the premium for the policyholder because the ensuing IDV is reduced, making it easy for the automobile owner. This is also easier for the insurance company because it reduces their overall risk in the case of damages arising or a claim being made.

How to calculate IDV?

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 standard rate of depreciation of IDV in cars

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

New up to 6 months 5%
6 months – 1 year 15%
1 – 2 years 20%
2 – 3 years 30%
3 – 4 years 40%
4 – 5 years 50%
5 years+ Can be negotiated by both parties*

* 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.

The formula for calculating IDV for Car Insurance

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.

Important Points to remember when calculating the IDV

The most important points to keep in mind while calculating IDV are:

  1. The current market value of the vehicle determines the IDV and correlates very strongly to it. Hence, the model, make and registration location of the vehicle all end up contributing to the vehicle’s IDV.
  2. Age of the vehicle makes a big impact on the IDV due to depreciation.
  3. The depreciation rates vary depending on the terms specified under the Motor Tariff Act.
  4. IDV is the maximum amount that the insurance provider will pay the policyholder in case of theft of the vehicle or damage.
  5. Calculating the IDV incorrectly may result in decreased vehicle damage coverage if it is lower, or increased premium if it is on the higher side.
  6. To calculate your IDV accurately you can use an online IDV calculator for car
  7. It is important to arrive at the right IDV every year and update it in a way that it reflects the accurate value of the car, and this is where an IDV value calculator is really helpful

Pros and Cons of Increasing Insured Declared Value (IDV) in Car Insurance

Pros of Increasing Insured Declared Value (IDV) in Car Insurance
  1. The only pro of increasing the IDV of your vehicle is that in the case of a total loss on your car (more than 75%), you will get a good claim against the damages.
Cons of Increasing Insured Declared Value (IDV) in Car Insurance
  1. Increasing your IDV above the stipulated, accurate value of your vehicle can only cause a challenge. The entire idea of an insurance policy is to protect you from the losses associated with damages to your vehicle. However, a high IDV well above the market value of your car is likely to be a loss to you, as the premium amount, which is directly proportional to the IDV of your car will also be very high as a result.
  2. A lot of people assume that a high IDV indicates that the resale value of the vehicle is also likely to be high, but the IDV is not binding for resale purposes and therefore does not apply here.

Pros and Cons of Decreasing Insured Declared Value (IDV) in Car Insurance

Pros of decreasing Insured Declared Value (IDV) in car insurance
  1. When you decrease the IDV of your vehicle, the premium amount you have to pay to keep it insured also goes down proportionately. Typically, your insurance provider will offer you a range of values for your IDV for which you can settle on a certain value. This is because the IDV of your car depends not only on your car but on the market value.

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.

Cons of decreasing Insured Declared Value (IDV) in car insurance
  1. When you decrease the IDV of your vehicle exorbitantly, you do save money on the premium. But, in case any damage occurs to your vehicle, you will be compensated on the basis of the lower IDV amount only. This means you may not be compensated enough by the insurance company to adequately take care of your losses. This is one of the biggest problems with over reduction of the IDV value of your vehicle.

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.

IDV and Car Insurance Premiums

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

  1. People wrongly assume that they are entitled to the total IDV of the car even with smaller damages and losses. This is untrue. The total IDV of the car is payable by the insurance company only in case the car has been stolen, and an appropriate FIR has been filed with the local police station. The other situation when the full IDV is paid by the insurance company is when the damages to the car are more than 75%. This can happen in the instance of mob riots, earthquakes, storms, floods etc.
  2. To calculate IDV you can either use the help of an online IDV calculator or even talk to your insurance agent, who will arrange for a vehicle inspection by an automobile value inspector and arrive at an accurate figure.
  3. Increasing or decreasing the IDV value substantially can be a loss-making endeavour for the insurance policyholder. The idea is to arrive at an accurate IDV based on the market value of the vehicle.
  4. IDV depends on the depreciation of your vehicle’s value. This depreciation is stipulated in the Motor Tariff Act for all insurance providers to follow but can vary depending on factors such as the make of the vehicle, the brand of the manufacturer, the location of registration of the vehicle, etc.

Key Takeaways

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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  1. What is the difference between IDV and zero depreciation?

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.

  1. Can I increase my IDV next year?

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%.

  1. Does IDV cost money?

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.

  1. Should we keep IDV high or low?

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.

  1. Does IDV include RTO charges?

IDV does not include registration costs, additional insurance charges, such as processing fees, or RTO charges.

  1. How do I claim my IDV value?

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.

  1. What if the car repair cost is more than the IDV?

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.

  1. When is the total loss of a vehicle declared?

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.

  1. How much does IDV decrease every year?

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.

  1. What will be the IDV of the New Car?

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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