Motor Insurance

What Is IDV In Car Insurance?

by SMCIB on Thursday, 08 February 2024

What Is IDV In Car Insurance?

Consider your car as a gadget, like a phone or a laptop. Just like how these devices lose value over time, your vehicle also becomes less valuable as it ages and gets used. Usually, when you get an insurance policy for your car, the insurance company does not look at the original price you paid. Instead, they consider its current worth in the market after taking into account its depreciation. This current value is what they call the "Insured Declared Value" or simply "IDV" - it is the estimated market value of your vehicle.

In simpler terms, it is the amount you will get if something happens to your vehicle and you make a claim (like theft or total damage). Understanding IDV is very important when it comes to car insurance. It affects how much coverage you get, the premiums you pay, and what you can claim in case of an unfortunate event. Let's understand its specifics in this article.
 

Understanding Insured Declared Value (IDV) In Car Insurance

When you get car insurance, you are making a smart long-term move. It shields you not only from breaking traffic rules but also from the financial aftermath of various unexpected circumstances, like accidents, theft, natural disasters, etc. Choosing the right insurance for your four-wheeler involves considering multiple factors, and one key element is the Insured Declared Value (IDV) of your car.

IDV stands for Insured Declared Value, which is the assigned value of your car. This is the amount you will be compensated for if your vehicle faces irreparable damage or gets stolen. The premiums you pay for your car insurance policy depends on the IDV of your car. If your car's IDV goes up, your premium will also go up. On the other hand, if the IDV decreases, your premium will decrease as well.
 

Why is The IDV of My Car Important?

Understanding the IDV of your car is crucial because it influences how much coverage you get and thereby impacting the premiums you pay for it. When it comes to car insurance, a higher IDV means more coverage and a higher premium. On the other hand, lower IDVs result in lower premiums.

If your car gets damaged, the insurance company calculates the expenses and when you purchase the policy, you get the payout based on the damage and the IDV. In the case of a total loss (75% or more), they will pay the entire IDV. A higher IDV means a greater risk because it reflects a higher market value for your car. So, understanding and choosing the right IDV is important for your car insurance.
 

How to Calculate IDV for Car Insurance?

To find the Insured Declared Value (IDV), here's the formula -

Insured Declared Value = (Manufacturer's listed price - depreciation) + (Cost of vehicle accessories - depreciation of these parts)

Computing Depreciation

All cars lose value over time. The moment you drive a new car off the showroom, it starts losing its value. This happens because the car gets older and experiences wear and tear.

Let's take Jaya and her brother Jagan’s case as an example -

They both have the same model Maruti Swift cars, but Jaya bought hers in 2020, and Jagan bought his in 2022. Even though their cars are the same make and model, Jaya's car has lost more value because it is older.

Insurance companies determine how much a car has depreciated based on its age and each insurer has their own way of figuring this out. Here's a simple example to give you an idea of how an insurer might calculate depreciation -

 

Age of the Vehicle

Depreciation % for IDV

Up to 6 months.

5%

6 months to 1 Year.

15%

1 year to 2 years.

20%

2 years to 3 years.

30%

3 years to 4 years.

40%

4 years to 5 years.

50%

Beyond 5 years

To be negotiated

Note: IDV calculation for vehicles older than 5 years doesn't consider depreciation.

The depreciation rate and current market value are key factors in determining your IDV. These elements decide the claim amount, causing your car's IDV to decrease each year since purchase.
 

Components of Car Insurance IDV

To calculate your car's Insured Declared Value (IDV), several factors are taken into consideration –

  • Registration details
  • Registration location
  • Showroom price
  • Registration date and type
  • Make and model
  • Engine’s cubic capacity
     

Point to Remember When Calculating Your Car’s IDV

Here are a few factors to consider before you compute your car’s IDV -

  • The IDV is known as the maximum amount you will receive if your car faces a total loss or gets stolen. It ensures you get enough money to cover the financial losses from irreparable damage or theft.
  • Opting for a lower IDV may save you money initially, but it could complicate things during a claim. If the loss or damage exceeds the chosen IDV, like in the case of theft, you might face issues.
  • Do not exaggerate your vehicle's IDV as it raises the premium, and your claim is based on the actual loss, not the IDV you selected.
  • Stick to the given formula to determine your IDV. Avoid random calculations to prevent complications during a claim.

Note: IDV and other values can differ between insurers, so always read the policy details before buying.
 

Role of Insured Declared Value as Per The Type of Car Insurance You Buy

The IDV depends on the type of insurance you get. The primary types of car insurance are –

  • Third Party Only Policy
    This policy covers you for legal responsibilities if you cause damage, injury, or death to someone else or their property. It does not cover damages to your own vehicle. The premium for a third-party cover is set by the IRDAI and changes based on your vehicle's make and model. You should note that the concept of IDV does not apply in a third-party policy.
     
  • Comprehensive Policy
    The policy covers both the damages sustained by your car as well as third-parties. It provides financial protection against accidents and natural disasters like theft, floods, earthquakes, etc. The cost of this insurance policy is calculated based on your car's IDV and other factors. As your car gets older, its IDV goes down. . You should remember that the older your car, the faster its value depreciates.
     
  • Standalone Own-Damage Policy
    This policy covers only damages to your car, not the damages caused to third parties. Similar to a comprehensive insurance policy, this policy protects against accidents and disasters such as theft, floods, earthquakes, etc. The premium for this policy is calculated based on your car's IDV and other factors.
     

Factors That Help to Determine The IDV of A Car

The Insured Declared Value (IDV) is determined by a number of factors, including -

  1. Type Of Car
    The make, model, and variant of your car play an important role in determining the IDV of your car. For example, an Audi will have a higher value than a Hyundai i10. Different types of cars, like sedans, hatchbacks, or SUVs, will also have varying IDVs. So, a Hyundai’s IDV will be different from that of an Audi.
     
  2. Model Differences
    Even within a brand, different models will have distinct IDVs. For instance, the IDV for a Maruti Alto will differ from that of a Maruti Swift. Additionally, specific variants, such as Maruti Dzire LXI and Maruti Dzire ZXI, will also have different IDVs.
     
  3. Cubic Capacity And Ex-showroom Price
    The ex-showroom price is the base cost of the vehicle before adding extras like registration, insurance, and road tax. This price can differ between cities, due to logistics and state government costs. For instance, Goa and Delhi have different showroom princes. As a result, the IDV is affected by these variations in ex-showroom prices.
     
  4. Car's Age
    As mentioned earlier, a car's value decreases as it ages, known as depreciation. The older the car, the more it depreciates due to wear and tear. This depreciation affects not only the car but also its accessories. So, the older the car, the higher the depreciation and this ultimately leads to a lower IDV.
     

What Happens in Case You Decrease Your Car’s IDV?

Lowering your car's IDV directly impacts your insurance premiums and also influences the payout you get if your vehicle is stolen or declared as a total loss.

Here's what happens if you decrease your IDV –

  • Your insurance premium will go down.
  • You will save money on your car insurance.
  • However, the cover amount for your car will also decrease. As a result, you will receive less compensation in case of a total loss or theft.
     

What Will Happen If You Increase Your Car’s IDV?

Increasing your car's IDV affects your insurance premium as well. Here's what may happen when you raise your IDV –

  • Your insurance premium will increase.
  • Setting an excessively high IDV, that is higher than the market value, could lead to financial loss for you.
  • Some people believe that maintaining a very high IDV will result in a better resale value for their car. However, this is only a misconception.
     

When Should You Have A Low IDV for Your Insured Car?

Opt for a lower IDV in the following situations –

  • Your car is old.
  • You do not frequently use your car.
  • You plan to sell or scrap your car.
  • You are managing on a budget.
  • You feel that lower coverage will not impact you.
     

When Should You Have A High IDV for Your Insured Car?

Opt for a higher IDV in the following situations –

  • Your car is expensive.
  • Finding or replacing parts for your car is challenging or costly.
  • You are comfortable paying a higher premium.
     

How does IDV Affect Your Car Insurance Premium?

Your car insurance premium is closely linked to the Insured Declared Value (IDV). This means that if your IDV is higher, your insurance premium will also be higher. As your car ages and its IDV decreases, so does your premium.

If you plan to sell your car, a higher IDV will help you fetch a better price. Therefore, when choosing the right insurance policy for your vehicle, it is crucial to weigh both the IDV and the premium. Opting for a policy with a low premium might seem attractive, but it could be because the offered IDV is inadequate for your car.

IDV And Claims

IDV plays a crucial role in claims processing. When you file a claim, the insurance company resolves it based on your IDV. Here are the scenarios where IDV matters in claim settlement –

  • Constructive Total Loss
    Constructive total loss occurs when your car undergoes severe damage from events like accidents, earthquakes, cyclones, riots, vandalism, etc, making repairs too costly or even impossible. In such cases, the repair expenses might exceed your car's IDV. It is then deemed a constructive total loss, and the insurer compensates you with the car's IDV approximately.
     
  • Total Loss
    In the event of total loss, if your car becomes irreparable, the insurer compensates you with the car's IDV approximately.
     
  • Theft
    In case of a theft, you should make it a point to promptly file an FIR. Once the police declare your car as 'non-traceable,' you can initiate a car insurance claim. In theft cases, the insurer provides compensation based on your car's Insured Declared Value.
     

What is The Relation Between A Car’s IDV And Its Insurance Policy Premium?

Your car’s Insured Declared Value and insurance premium are interlinked – if your IDV is high, your premium will be high too. As your vehicle ages and the IDV decreases, your premium also goes down. Other factors like usage, past insurance claims, etc., can also have an impact on the price.

When selecting the right car insurance, it is essential to consider the offered IDV and not just the premium. Opting for a company with a low premium might seem appealing for now, but it is actually because there is a lower IDV on the offer. But if something happens to your car (like a total loss or theft), you will only receive the IDV mentioned in the policy and this could be less than the actual market value of your car. Having the right IDV ensures you get fair compensation in case of an unfortunate event like a total loss.
 

Why Should You Care About A Car's IDV?

The IDV is the market value of your car and it has a direct impact on your insurance premium. The level of risk for your car is also determined by its IDV – a higher IDV means a higher risk and this consequently leads to a higher premium.

When it comes to making a claim, the compensation that you will receive is based on your car's IDV, as repair or replacement costs depend on it. This is why you should ensure to get the right IDV as it is one of the most vital aspects of your car insurance. It helps ascertain that in times of need, you receive the correct compensation for any loss or claim.

In cases of theft or irreparable damage, the compensation that you get is the same as that of the IDV. Hence, having the right IDV ensures you get the accurate compensation reflecting your car's true value.
 

Advantages and Disadvantages of High/Low IDV

Here is a table to understand the pros and cons of both high and low IDV for your car –

IDV

High IDV

Low IDV

Advantages

  • Increased cover amount in your car insurance policy.
  • Sufficient funding for a new car in theft or total loss situations.
  • Higher premium for your car insurance policy.
  • Higher loss as you have to pay more than what is required.

 

Disadvantages

  • Reduced premium for your car insurance policy.
  • Cost savings as you pay  for the insurance policy.

 

  • Lower cover amount, resulting in a lower claim amount for total loss scenarios.
  • Higher out-of-pocket expenses when the accidental damage expenses are higher.
  • Higher loss incurred due to a lower claim amount.

Summary

IDV or Insured Declared Value in car insurance is the estimated current market value of your vehicle. It plays an important role in determining your car’s insurance premium and the payout you would receive in case of theft or total loss. Understanding IDV helps you make informed decisions about your car insurance to get adequate coverage during unexpected situations. So, whether you are buying a new policy or renewing an existing one, being aware of your car's IDV ensures you are appropriately protected and financially prepared.

FAQs

  1. What is an ideal IDV for car insurance?
    The optimal IDV for your car aligns closely with its current market value. For a new car, this value is based on the invoice. As your car ages, consider factoring in the depreciation value in the IDV. The goal is to have an IDV that sufficiently covers potential losses or damages in case of an accident.
     
  2. Is it good to increase IDV value?
    The decision to raise or lower your IDV depends on your car's age and condition. If your car is new and in good shape, opting for a higher IDV is advisable. On the other hand, if your car is over 5 years old and not in great condition, it is advisable to stick with a lower IDV.
     
  3. How is IDV calculated?
    Calculating your car's IDV involves considering factors such as its age and price, factoring in depreciation.
     
  4. What happens if IDV is less?
    Mostly, people are tempted by lower premiums and thus opt for a lower IDV. However, it is crucial to remember that while this might save on premiums, it also means lower compensation during claims that may be insufficient for your car's needs. The key is not to go for a higher or lower IDV, but to find the right IDV that ensures adequate coverage, minimising out-of-pocket expenses.
     
  5. What is the IDV for cars older than 5 years?
    For cars older than 5 years, the Indian Motor Tariff applies a standard depreciation rate of at least 50% to determine the appropriate IDV.
     
  6. What is the IDV for a new car?
    The IDV for your new car is the invoice value, accounting for any depreciation if the car has been in use. This provides an accurate assessment of your car's current value.
     
  7. What is the IDV for a car outside the showroom?
    Once you have driven your car out of the showroom, the IDV is the invoice value minus the minimum applicable depreciation.
     
  8. Why does the IDV vary between different insurance companies?
    Insurance companies adjust the Insured Declared Value (IDV) to maintain lower premium rates. It's crucial to select an insurer that provides an accurate IDV for your vehicle, even if it means a slightly higher premium.
     
  9. Will the location of purchase have an influence on the IDV of my car?
    Yes, the IDV of your car can go up or down depending on the ex-showroom price. Since this price differs across locations, the IDV will vary accordingly.
     
  10. What is the meaning of NCB and IDV?
    IDV means Insured Declared Value, which is the approximate current market value of your car. NCB stands for No Claim Bonus – a discount given during policy renewal if you have not made any claim in the previous policy.
     
  11. How does IDV affect car insurance premiums?
    Your car insurance premiums are directly proportional to the market value or IDV of your car. Therefore, the Insured Declared Value plays a crucial role in determining the amount you pay for your car insurance policy.

 

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