Is Higher IDV Considered Better in Car Insurance?

The Insured Declared Value of a car plays a significant role in determining the premium of a four-wheeler insurance policy. If you are wondering whether a higher IDV is better for your motor insurance policy or not, read further to know more about the importance of Insured Declared Value in car insurance.

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What is Insured Declared Value in Car Insurance?

One of the most essential factors to determine the cost of car insurance is the Insured Declared Value of a car. The Insured Declared Value of a car is the maximum amount that an insurer will pay you in case of a total loss or theft of the insured car. It is the current market worth of the insured vehicle. Insurance companies calculate the premium of a four-wheeler insurance policy based on the IDV. A lower IDV of a car implies that its premium will also be lower and a higher IDV of a car will result in a higher premium. Thus, IDV is the most important factor used by insurance companies to determine the premium of a motor insurance policy.

How is Insured Declared Value of Car Calculated?

IDV is usually calculated by deducting the depreciation borne by the insured car. Thus, the more is the depreciation, the lower will be the Insured Declared Value of a car.

To calculate the Insured Declared Value of your car, an insurance company will use the given formula:

IDV= Current market value of a car - Depreciation amount of the car

If you have also equipped your car with some accessories in your car, the IDV will be calculated by using the following formula:

IDV of car = (Company’s listed price – the depreciation amount) + (Cost of accessories - the depreciation amount of these parts)

Should I Increase the Insured Declared Value of My Car?

Many insurance companies allow policyholders to set the IDV while purchasing a four-wheeler insurance policy directly from them. However, when it comes to setting an IDV, 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 for your car, 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, many car owners tend to select a lower IDV for their car to reduce their car insurance premium since IDV and premium are directly premium to each other. However, this can lead to a lower compensation amount at the time of making a claim.

So, how to choose the IDV of your car? The best answer to this is to settle on an IDV that is at par with the market value of the vehicle. This is because as the car becomes older, the Insured Declared Value will automatically reduce because of higher depreciation. Therefore, it is suggested to choose an amount that is closest to the market value of your car.

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 Insured Declared Value of your car, you must understand the depreciation that your car will bear over years. For this, the IRDAI has fixed a depreciation schedule for cars as per their age. Insurance companies use this schedule to calculate the depreciation percent that they will be deducted from the market value of a car to arrive at the final Insured Declared Value.

Thus, before choosing a motor insurance policy, you can refer to the following table and evaluate the IDV of your car:

  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 in calculating the market value of a car along with the ideal premium amount that a car owner should pay for that IDV. The Insured Declared Value calculator takes into consideration the age of your vehicle to calculate the correct Insured Declared Value of a car.

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 of your car, you may have to pay a higher premium but the claim amount will also be more. 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 at par with the car’s 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.

Written By: PolicyBazaar - Updated: 01 April 2022
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Note: This is your car’s recommended IDV as per IRDAI’s depreciation guidelines.asdfsad However, insurance companies allow you to modify this IDV within a certain range (this range varies from insurer to insurer). Higher the IDV, higher the premium you pay.

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