IDV in Car Insurance
IDV is one of the most important terms to consider when buying a newRead more
What is IDV in Car Insurance?
IDV is the maximum payout an insurer provides as compensation to the policyholder in case of total loss or theft of the insured vehicle. This compensation is offered when the insured car cannot be traced or is beyond repair (damaged more than 75% of its current market value).
In terms of car insurance, IDV is a crucial factor as it not only decides the claim payout but also plays a major role in calculating the premium. For each insured vehicle, it is fixed right at the beginning of the policy term, and it remains unchanged throughout the policy year and can be changed only during car insurance renewal. IDV is only applicable under a comprehensive or OD cover and not under third-party car insurance.
The IDV of the car, once purchased, along with that of the company-fitted accessories, is fixed on the basis of the manufacturer's listed price for that car model at the beginning of the policy. Following that, during car insurance renewal, the value is adjusted as per the applicable depreciation and is usually 10% less than the previous IDV, also based on the depreciation slab.
Why is IDV in Car Insurance Important?
IDV in insurance is extremely important. It not only determines your car insurance premium, but also the claim amount if the vehicle is stolen, involved in a major accident, or declared a total loss. Here are some of the common reasons highlighting the importance of IDV in car insurance:
- Claim Settlement: In the event of an accident or total loss, insurance providers do not consider the vehicle's market value; instead, they take into account the IDV of the car as stated in the policy.
- Premium Calculation: Mentioning the correct insured declared value of the car when purchasing the car insurance policy and following the necessary guidelines until the car policy is in effect directly impacts the premium. Higher IDV increases it, while a lower one results in a reduction of the car insurance premium.
- Total Loss Cases: In case your car is stolen or damaged beyond repair, it is known as a constructive total loss case. Insurers measure and reimburse the selected IDV mentioned on your car insurance to settle such claims, making the insured declared value of your car extremely important.
How to Calculate the IDV of a Car?
To calculate the IDV of a car, you must deduct the depreciation based on the age of the vehicle from the manufacturer's listed selling price. You must also deduct the value of any additionally-fitted accessories in the vehicle that are not fitted by the manufacturer.
Car insurance companies usually calculate the IDV based on the following formula:
IDV = (Manufacturer's Selling Price - Depreciation Cost) + (Accessories Cost - Depreciation of these Accessories).
Alternatively, you can use an IDV calculator to get an estimated IDV and OD premium of your car insurance in just a few minutes.
Depreciation to Calculate IDV
The Insurance Regulatory and Development Authority of India (IRDAI) has set the following depreciation chart to compute IDV of an insured car:
| Vehicle age |
Depreciation % to adjust IDV |
| Less than six months |
5% |
| Over six months, less than a year |
15% |
| Over a year, less than two years |
20% |
| Over two years, less than three years |
30% |
| Over three years, less than four years |
40% |
| Over four years, less than five years |
50% |
Factors Affecting Insured Declared Value of the Car
The insured declared value of a car is impacted by the following factors:
- Age of the Car: The vehicle's age affects its Insured Declared Value. When the vehicle is new, its IDV is higher as compared to when it ages. Thus, the higher the age of the car, the lower the IDV due to the depreciation incurred by the vehicle.
- Type of the Car: The type of car is also used to compute its IDV. These types include sedans, SUVs, hatchbacks, MUVs, etc. Since these types have distinct features, their Insured Declared Value also differs.
- Registration City: The city where the insured car is registered also affects the vehicle's IDV. The IDV of cars registered in a metropolitan city like Delhi or Mumbai will be higher than in a tier 2 city like Lucknow.
- Accessories: The cost of factory-fitted accessories and the depreciation incurred by these accessories also affect the IDV of the insured car.
How to Choose the Correct IDV for a Car?
As you know by now, setting the correct IDV is extremely important and decides your claim payout. While a low IDV affects your premium, a high IDV increases the premium. Therefore, you must use the tips given below to choose the correct IDV during car insurance renewal:
- Use an IDV Calculator: Using an online IDV calculator will help you to calculate the ideal IDV of your vehicle and make the best of the claim amount.
- Check the Current Value of your Vehicle: IDV must align with the current market value of your vehicle. It is very important to know the same as it helps you determine your ideal value while renewing your car insurance.
- Know the Depreciation Percentage: Since IDV decreases with the age of the vehicle based on the depreciation, it is crucial to know the correct depreciation percentage and calculate the ideal IDV of your vehicle.
- Depreciated Value of Accessories: You must also consider the factory-fitted and approved electrical and non-electrical accessories. You must add the current market value of these accessories to the IDV of your car.
- Do not set a low IDV: Setting an IDV lower than the current market value will decrease the premium, but also means that the payout in case of theft or total loss will also be low, thus leaving your vehicle underinsured.
- Do not set a high IDV: A high IDV will increase your premium without significantly boosting your claim amount.
