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Understanding IDV in car insurance and why more is better

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Published on February 1, 2021. EST READ TIME: 3 MIN

Car insurance is a very important aspect of car ownership. Just as you pay attention to the technical specifications of the car like engine, mileage, etc. before the purchase, you need to evaluate the specifications of the car insurance policy as well. Because a carefully selected policy with the right add-ons can financially protect you, co-passengers, own car and third party, when the need arises. While you want the best protection, you also want to save on your car insurance premium . To achieve the same, you consider lowering your car’s Insured Declared Value or IDV, but is this a wise decision?

What is IDV?

When you buy a motor insurance policy, especially a comprehensive policy, you are covered by its many components like third party cover, personal accident cover and own damage cover. Simply put, Insured Declared Value or IDV is the financial value that you put on your own vehicle. IDV is the limit of your own damage cover and the basis on which the insurance company will process your claim.

Taking up a simple example, if your IDV is set at INR 3 lakhs, the insurer can process claims up to three lakhs only. If you want more coverage, you should buy a policy with a higher IDV.

How does IDV matter in car insurance?

Of all the policy components, it is the own damage component of your car insurance premium , which is calculated based on the Insured Declared Value or IDV. Regulators set the charges for all other components in policy. The obvious conclusion here being the higher is your IDV, the more amount you will have to pay in premium. This raises up the big question, who decides your car’s IDV?

Generally, the insurance company follows a pre-set formula to calculate the IDV of a car.

• For a new car, less than 6 months old, IDV is calculated at 5% depreciation from invoice value

• By the end of the year, this falls to 15 %

• Cars aged between one and two years get 20% depreciation

• Cars aged between two and three years get 30% depreciation

• Cars aged between three and four years get 40% depreciation

• Cars aged between four and five years get 50% depreciation

Insurance companies are at liberty to allow deviations in the above-mentioned formula. This means that they can allow you as a car owner to set your own IDV. The rule is that such deviation can only be within a 15% range from what the base formula allows.

So, if your car has a default IDV of INR 3 lakh, you can bring down the IDV to as low as INR 2.55 lakh or take it up to as high as INR 3.45 lakh. As said earlier, insurance policy with lower IDV will be cheaper than higher IDV, but the cover may prove inadequate when needed.

What is IDV in third party insurance?

Short answer – Zero

Many people consider that third party insurance is cheaper and enough to fulfil the legal requirements of car insurance. So, they choose it over a comprehensive plan. The big issue with third party plans is that there is no IDV in third party insurance as it is meant to cover the damages to other people impacted by a car accident. So, the car insurance company does not offer any kind of cover for your car.

This means that in case of an accident while your policy will cover the court-ordered damages to other people, no claim can be made for the repair of your own car. Unless you are driving a beat-up, disposable car, relying on just third party insurance is a recipe for disaster!

How a zero depreciation policy helps?

When you are buying car insurance online , the site will offer you an add on called zero depreciation policy. This offsets the depreciation on your claim from your IDV. It will raise your premium by a small margin, but in case you make a claim, the insurance company will make the settlement without deducting the depreciation amount from your approved claim amount. This will protect you from any nasty surprises when claim shortfall lands you in a financial soup at the billing counter of the car repair workshop.

Lower or higher IDV in cars - Final Verdict

Common sense dictates that you should choose maximum IDV. When you search for car insurance online , the seller will allow you to change your IDV in set parameters. Go through complete terms and conditions of the IDV and re-confirm that the insurance company agrees to settle claims up to higher IDV. Unless you are hard-pressed for funds, you must always choose to pay the very small difference in premium now. It will protect you from any unexpected repair or replacement expenses because some complicated components in modern cars can even cost tens of thousands, even lakhs to repair or replace.

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

S. Gopalakrishnan | Motor Insurance Expert | 40+ years of experience in insurance industry

A veteran in insurance industry. S. Gopalakrishnan is a name to reckon with in the field of reinsurance, he has headed the Reinsurance department and has rich experience in other fields of motor insurance. He loves to share his opinion on latest topics in the insurance industry and how he can help people in safeguarding their assets using insurance products.

Few Other Articles:

• Concept of IDV in Car Insurance
  

• IDV of Vehicle and its Importance while Insuring Vehicles

• How well do you know these motor insurance terms?