Is Higher IDV Considered Better in Car Insurance?
The Insured Declared Value (IDV) of a car plays a significant role not onlyRead more
What is IDV in Car Insurance?
IDV in car insurance is one of the most important factors that affect your premium. It is the maximum amount that an insurer will pay you in case of a total loss or theft of the insured vehicle. The premium for your car insurance is directly dependent on the IDV. A higher IDV increases the premium, while a lower one reduces it.
A fair IDV means you will get a reasonable claim settlement without paying unnecessarily high premiums. Therefore, it is important to set an accurate insured value of the vehicle.
How is the Insured Declared Value Calculated?
IDV is calculated based on the depreciation borne by the insured vehicle. The IDV reduces every year as your car ages.
Here is the following formula to calculate the IDV of a vehicle that car insurance companies use:
IDV = Ex-Showroom Price - Depreciation (based on the vehicle age)
However, if you have also equipped your car with some accessories, the IDV will be calculated by using the following formula:
IDV = (Company's listed price - the depreciation amount) + (Cost of accessories - the depreciation amount of these parts)
Should I Increase the IDV of My Car?
Many insurance companies allow policyholders to set the IDV while purchasing car insurance directly from them. However, while setting the same, you must know whether a higher Insured Declared Value will be better for your motor insurance policy or not.
If you prefer to choose a higher IDV, you will be required to pay a higher premium amount. However, the compensation given to you during the claim process will be higher.
On the other hand, it is also important to understand that setting a very high IDV will lead to an unnecessary increase in the premium without giving you any benefits in the long run.
So, the best way to select an IDV is to keep it at par with the depreciated value of the vehicle. Ideally, it must be 5- 10% lower than your existing IDV. This is because, as the car ages, the Insured Declared Value will automatically decrease due to depreciation.
Along with this, make sure to consider the age of your car, as there is no point in setting a higher IDV for older cars because older cars depreciate fast, and this will further reduce your Insured Declared Value.
How to Set the Correct Insured Declared Value of a Car?
To set the correct IDV, you must understand the depreciation your vehicle has experienced over the years. For this, the IRDAI has fixed a depreciation slab for cars as per their age. Insurance companies use this schedule to calculate the depreciation and choose the final IDV.
Here is the depreciation slab as per the IRDAI:
| Age of Car |
% Depreciation to calculate IDV |
| Less than 6 months |
5% |
| More than 6 months but not exceeding 1 year |
15% |
| More than 1 year but not more than 2 years |
20% |
| More than 2 years but not exceeding 3 years |
30% |
| More than 3 years but not exceeding 4 years |
40% |
| More than 4 years but not exceeding 5 years |
50% |
You can also calculate the IDV of your car with the help of an IDV calculator. It is an online tool that helps estimate the insured value and the ideal premium amount a car owner should pay for that IDV. The calculator takes your vehicle's age into account to calculate the correct value and the premium payable.
Wrapping Up!
To conclude, the IDV of your car is directly proportional to your insurance premium. So if you quote a higher Insured Declared Value, you may have to pay a higher premium, but the claim amount will also increase. Similarly, if you quote a lower IDV of your car, you will be required to pay a lower premium, and ultimately, the claim amount will also be lower.
Therefore, it is advised to choose an Insured Declared Value that is neither very high nor very low, but close to the current market value. You can also compare car insurance premiums and IDV of multiple insurers on websites like Policybazaar.com and choose the right motor policy for your four-wheeler.
