Understanding IDV in Car Insurance: A Complete Guide
In layman's terms, IDV in car insurance is the Insured Declared Value of the car. It is the maximum
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What is IDV in Car Insurance?
IDV is the maximum amount fixed by an insurer and provided 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.
In terms of car insurance, IDV is a crucial factor in calculating the sum assured. For each insured vehicle, the IDV is fixed right at the beginning of the policy term, and it remains unchanged throughout.
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, at each renewal, the value is adjusted as per the applicable depreciation.
Importance of IDV in Car Insurance
IDV in insurance is extremely important, as it determines the amount of car insurance premium that one has to pay. It also determines the exact value of the car that must be reimbursed to the owner in the event that the car is stolen or goes through a major accident or total loss.
The higher the IDV value of the car, the higher the premium and vice versa. Some people may, therefore, intentionally put wrong estimates in order to lower the IDV; however, this turns out to be an unprofitable decision in the long run.
In case of an accident or a total loss, insurance providers do not consider the vehicle's market value; they take into account the IDV value of the car mentioned while taking the policy. Accordingly, the car insurance claims are settled.
Although it may initially pinch to pay a high premium, its benefits definitely outweigh this initial expenditure. Mentioning the right IDV value of the car when purchasing the car insurance policy and following the necessary guidelines tilts the scales in the car owner's favour.
How is IDV Calculated?
IDV is the amount that is paid out to the vehicle owner in case of total loss, damage or theft of the vehicle. It also determines the vehicle insurance premium that one has to pay, which in turn is based on the vehicle's brand, model, and age.
The Insurance Regulatory and Development Authority of India (IRDAI) has devised certain guidelines in order to compute IDV for cars. According to these norms, the IDV value of a car can be up to 95% of its showroom price. Until the vehicle is six months old, this IDV value of the car remains the same, beyond which, the value begins to depreciate.
IDV Depreciation Chart
| 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% |
In the case of cars that are over five years old, there is no fixed depreciation value, and there is no set formula for the calculation of the IDV value of the car- it is arrived at by a mutual agreement between the car owner and the insurance provider.
The old vehicles' condition is thoroughly assessed (by car dealers, surveyors, etc.), following which the IDV value of the car is computed. This IDV is then used by the insurance company to determine the premium amount.
As a formula, the IDV value of the car is arrived at after deducting depreciation from the manufacturer's listed selling price. The value of any accessories in the vehicle that are not fitted by the manufacturer is calculated separately as an extra cost in case insurance is needed for them. Insurance costs and registration are not a part of the IDV value of the car calculation. Thus, the formula for IDV calculation is summarised as:
IDV = (Manufacturer's Selling Price - Depreciation Cost) + (Accessories Cost - Depreciation of These Accessories).
Alternatively, you can make use of an IDV calculator, which will help you get an estimated IDV and OD premium of your car in just a few minutes.
Also Read: Is Higher IDV Better in Car Insurance?
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 will be its Insured Declared Value.
- 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.
- Vehicle's Registered 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 Mumbai will be higher than in a tier 2 city like Lucknow.
- Depreciation of the Car: As the car ages, its depreciation also increases. This depreciation is decided by the IRDAI and is deducted from the IDV every year. Thus, the older the car, the lower will be its Insured Declared Value.
- Cost and Depreciation of Accessories: The cost of additional accessories and the depreciation sustained by these accessories also affect the IDV of the insured car. This amount is deducted from the car's MSP along with the car's depreciation.
What is the Ideal IDV for a Car?
One of the most asked and confusing questions is what the ideal Insured Declared Value of a four-wheeler should be. Deciding the IDV depends on the policyholder, and you must know what IDV you should keep that does not cost you a higher premium. Increasing the value of IDV over your car's market price will cost you a huge premium, and reducing it will reduce your compensation at the time of claim.
To crack this, ensure that your IDV is close to the market value of the insured car. For a new car, the IDV will be its market value, but as it ages, the depreciation is also deducted to calculate the IDV.
So, make sure that the IDV you choose covers the cost of depreciation as well.
Also Read: Why You Must Set Correct IDV in Car Insurance?
