Before you buy car insurance it is imperative you understand how its premium is calculated. Insured declared value is one of the most significant factors contributing towards the calculation of your car insurance premium. It describes your car's value in its current state.
Read this blog to gain a clear insight into the concept of IDV in car insurance and how the premium is calculated based on it.
One common question car owners often ask is: what is IDV in car insurance? Insured Declared Value is simply the market value of your car. It is the maximum sum insured on your vehicle in a car insurance policy.
If you have comprehensive insurance, the insurance company will pay you an amount equivalent to the IDV of your car in case your four-wheeler gets stolen or is totally damaged beyond repair.
It's important to understand that the insured declared value is one key factor in determining your vehicle's insurance premium.
The factors influencing IDV calculation include:
Over time, the insured declared value decreases as the car depreciates. The older the vehicle, the higher the depreciation rate. Hence, your IDV goes down as the vehicle gets old.
The insured declared value is fixed based on the manufacturer's listed selling price. The insurer will then adjust the IDV for depreciation in line with the insurance company's schedule as below:
Depreciation schedule for fixing the IDV of a car
| Age of the vehicle | % of Depreciation |
| 6 months and below | 5% |
| 6 months to 1 year | 15% |
| 1-2 years | 20% |
| 2-3 years | 30% |
| 3-4 years | 40% |
| 4-5 years | 50% |
Therefore, the fixed IDV for five years operates according to the above schedule. Later, it is decided through a mutual agreement between the insurance company and the policyholder.
A commuter vehicle often has a lower IDV than luxury personal cars.
The location of your car registration can significantly impact the vehicle's IDV.
IDV determines a car’s risk level and thus directly affects your insurance premium. If you state a higher IDV, your damage cover premium also goes up. If you state it lower, the premium goes down. IDV also influences the insured amount. Declaring a low IDV can result in a low sum insured. Thus, you must find a suitable IDV for your four-wheeler.
As stated earlier, IDV impacts the maximum coverage amount you can receive. This implies that when you declare a reasonably higher IDV, you are entitled to get adequate coverage in case of car theft or total damage to your vehicle. You will receive a lower claim settlement amount if the IDV is set too low.
• Consider the value of your car. If the vehicle is new and expensive, you require the highest possible IDV.
• If you can afford to pay a higher premium on your auto insurance, go for a high IDV.
• If your car is old and you plan to replace it soon, opt for a lower IDV.
• When renewing your car insurance online, the seller will permit you to change your IDV within the set parameters. Thus you can adjust your IDV every time you renew your policy.
• Insurance companies can allow you to set your own IDV. However, such deviation is only possible within a 15% range from what the base formula permits. Therefore, if your car has a default IDV of INR 3 lakh, you can reduce it to as low as INR 2.55 lakh. You can also raise it to as high as INR 3.45 lakh.
The following are some of the common misconceptions about IDV:
If a new car experiences total damage, the insurance will pay an amount equal to the showroom price of the vehicle.
Fact: The IDV is the maximum amount the insurance company will pay in case of a total damage or loss claim.
The insured cannot alter the IDV that the insurance company has chosen.
Fact: The insured may alter the vehicle's IDV recommended by the insurance company. For this, you can refer to the IDV offered for vehicles of comparable brands and ages, as well as the desired sum assured for your vehicle.
The car's IDV and resale value are the same.
Fact: A car's resale value is influenced by several factors, including the demand for the brand, the car's condition, the spare parts and accessories it has used, and its history of accidents. So, it may be lower than the IDV.
Insured declared value is the maximum amount your vehicle insurer will pay out if you experience total damage or theft of the insured car.
IDV is calculated with the following formula:
IDV= (Manufacturer's listed selling price- depreciation) + (Accessories not included in listed selling price- depreciation) and excluding registration and insurance costs.
The higher the IDV, the higher the insurance premium, and the lower the IDV, the lower the insurance premium.
The insurance company decides your car policy's premium based on its insured declared value. So, during a claim settlement, the car parts' repair and replacement expenses will depend on its IDV.
Before purchasing car insurance, it's important to understand how the premium is calculated. Use the table above to calculate the best IDV based on how your car depreciates over time. Remember, the age, model, city of registration, and standard depreciation are key factors to consider in the IDV valuation during your car insurance renewal.
Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.
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