Insured Declared Value for Car Insurance – All You Should Know

If you are reading this, you already know that third party car insurance is legally mandatory for driving a car in India However, a comprehensive policy is your best bet if you want to cover your own vehicle too, in case of an accident, natural calamity or theft. Basically, in case of an unforeseen event where your car gets damaged or stolen, the insurance company pays for the repairs. However, they will pay subject to a maximum value. This value is called Insured’s Declared Value or IDV. To know all about it, read on.

What is Car Insurance IDV?

Car insurance IDV is the value of your car in its current state. When you purchase and use a car, it experiences wear and tear, which means that its market value goes down over the passage of time. When you buy car insurance for your car, it is the notional amount of money that the insurance company will deem as the financial worth of your car.

What is the importance of IDV?

Car insurance IDVis the maximum limit that the car insurance company will consider for processing your claims. If your car is stolen and the police fail to find it, the insurance company will only pay up to the IDV, subject to deduction of depreciation and compulsory deductible as well as any other deductions that apply. If your car is in an accident, the insurance company will only pay claims as per IDV or write off your car and pay you the money.

Note that IDV has a direct bearing on your insurance premium, so if you state a higher IDV, your own damage cover premium will also go up and vice versa.

What is the process of calculating IDV?

IDV is calculated by using a set formula. The insurance company will take the selling price of your car and deduct depreciation from it. Car insurance IDV does not include charges paid for registration and road tax of the vehicle. It does not include any parking charges or octroi either. Understandably, car insurance IDV cannot include the cost of insurance policy itself either. You can use a zero-depreciation add-on to ensure that the depreciation amount is not cut in case you make a car insurance claim. Return to invoice add-on cover also helps you recoup most government charges and taxes.

For example, consider car that costs Rs 5 lakhs ex-showroom and Rs 6 lakhs on the road. Car IDV will be 5 lakhs minus any applicable depreciation. In the first 6 months, depreciation is 5% and between 6 to 12 months, depreciation is 15%.

What is depreciation of car parts for claims pertaining to partial loss?

Depending upon the age of the vehicle as well as the material used for a specific part, depreciation is calculated based upon the following formula.

• ●No depreciation is charged on any glass items.
• ●Any part made of fiberglass is subject to 30% depreciation.
• ●Any part made of rubber, plastic or nylon is subject to 30% depreciation. This includes tubes and tyres, batteries and airbags.
• ●Any paint work is considered for 50% depreciation. If a total charge is issued, then paint is counted as 25% of the total amount and depreciation is charged on that.

What is the relation between IDV and car insurance premium?

Your premium is directly proportional to your car insurance IDV. The insurance company will give you a base IDV. You can go with that IDV or you can reduce the IDV or increase it. Whichever direction you choose to go, your insurance premium will also go the same way, so higher IDV means higher premium and lower IDV means lower premium.

What is the relation between IDV and car insurance renewal?

The time of renewal of insurance policy is important because when you renew your policy, you can choose to increase your IDV as well as supplement it further by buying policy add-ons. These add-ons will strengthen the cover provided by your insurance policy.

What factors are accounted for to determine the IDV?

• ●The age of the car is the first factor when it comes to the calculation of IDV. Your IDV will go down as your car gets old.
• ●Model of the car is also a key factor. A commuter car will always have lower IDV than a luxury car.
• ●Car location registration can have a significant bearing on the car IDV.

Conclusion

In conclusion, if you own a car, it is best to always go for a high car insurance IDV based on what your insurance company will allow. The simple reason is that the higher the IDV you have, the better protection your car insurance will offer.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.