Reasons Why You Must Set Correct IDV for Comprehensive Car Insurance

Car insurance is legally essential for all cars in India. According to the Motor Vehicles Act, 1988, it is mandatory for all cars to be covered under car insurance with at least third party cover. If you are caught driving an uninsured car, you will be liable to pay a fine for violating the motor laws of the country. That’s one of the biggest reasons why most people buy insurance for their car. However, car insurance holds greater importance than abiding by the law of the country.

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Above-mentioned prices are for a 7-year-old Maruti WAGON R AVANCE LXI (998 CC) registered in Gurgaon and 15 days before expiry of previous policy

A car insurance policy provides you with financial security in case you incur a monetary expense or  liability arising out of your car. It covers you against financial liabilities in case your car gets damaged, stolen or destroyed in an accident, fire or due to natural and manmade calamities. It also covers your third party liabilities in case your car causes injuries or property damages to third parties in an accident. It will also provide you with compensation in case an accident results in your disability or death.

The coverage available under your car insurance policy depends on the type of motor insurance plan you have opted for your car. Broadly, you can either buy third party insurance or comprehensive car insurance. A third party car insurance policy only covers you against third party legal liabilities arising out of your car. On the other hand, you can get wider coverage with a comprehensive car insurance policy. Comprehensive car insurance not only covers you against third party liabilities but also covers any damages sustained by your car. You can also enhance the coverage of your comprehensive car insurance policy by buying add-on covers, such as engine protector, zero depreciation cover, roadside assistance, etc.

Thus, it won’t be wrong to say that comprehensive car insurance is the highest form of financial protection that you can ensure for your car.

What is an Ideal Car Insurance Policy?

The ideal car insurance policy is the one that provides you with adequate coverage to pay off the financial liabilities arising out of your car without paying a costly premium. It is important to strike a balance between the car insurance coverage and the premium that you pay. This is because having an under-insured or over-insured car can cost you dearly.

Having an under-insured car insurance policy can be a bad scenario. When you purchase a car insurance policy, you pay a premium to get your financial liabilities covered in case of an unfortunate incident. However, an under-insured car insurance policy does not cover the costs of repairing your car completely. Despite buying insurance and paying the premium, you will have to pay for the damages sustained by your car as the coverage provided by the insurer will be insufficient.

The situation is quite different in case you buy an over-insured car insurance policy. If you over-insure your car, you will get all your financial liabilities covered at the time of need. However, you will have to pay a higher car insurance premium for it.

Thus before buying a car insurance policy, you must carefully analyze the coverage that you will be getting for the premium you are going to pay. You can use a car insurance calculator to know the premium for a car insurance plan. You can easily find a car insurance calculator online and calculate the premium for different plans.

A car insurance calculator takes into account several factors, such as the type of insurance policy, details of the car, geographic location, add-on covers and the IDV, to calculate the premium for a policy. In fact, IDV is one of the biggest factors that influence the premium of your comprehensive car insurance policy. If you are new to the concept of IDV, let’s read on to understand it completely.

IDV in Car Insurance

The IDV or the Insured Declared Value is the maximum sum insured amount fixed by the motor insurance company. It refers to the maximum claim amount that your insurer agrees to pay under your car insurance policy in case your car gets damaged in an unforeseen incident. If your car gets stolen or there has been a case of a total loss, your motor insurer will pay the total IDV of your car as decided at the time of policy purchase.

The IDV is determined by estimating the current market value of your car. This is because the value of your car starts to depreciate as soon as it moves out of the showroom. Even if your car is as good as new after a year, its value will suffer depreciation due to its age. It happens because every car goes through wear and tear as it gets old. Depreciation is considered to estimate the reduction in the value of the car in accordance with its age. The higher is the age of the car, the more is the depreciation on it. Hence, the concept of IDV comes to exist.

The IDV of a car is calculated with the help of the following formula:

IDV = Selling price of the car as listed by its manufacturer - Depreciation as per the age of the car

For example, if the selling price of your car is Rs 5,00,000 and it has undergone a depreciation of Rs 1.5 lakh, then your IDV will be Rs 3.5 lakh. No matter what, your insurer will not pay more than Rs 3.5 lakh to cover the loss or damages to your car.

The IDV of a car may vary from one motor insurer to another. This is why it is important to pay attention to the IDV of a car insurance plan before buying it. You should know the maximum claim amount that you will get from your insurer if anything happens to your car. If you buy a comprehensive car insurance policy without checking the IDV, you may get a shock later when your claim amount will fall short in covering the loss or damages of your car. You can use a car insurance calculator to know the IDV of different car insurance plans before buying any one of them.

IDV for Older Cars

The depreciation on the value of a car is fixed for all cars up to five years old. The following table represents the depreciation on the car’s value as per the age of the car:

Age of the Car Depreciation on the Value of the Car
Up to 6 months old 5%
Above 6 months to up to 1 year old 15%
Above 1 year to up to 2 years old 20%
Above 2 years to up to 3 years old 30%
Above 3 years to up to 4 years old 40%
Above 4 years to up to 5 years old 50%

Once a car is older than five years, no fixed depreciation is applicable to its value. As a result, the IDV for cars older than five years is determined mutually by the motor insurance company and the owner of the car at the time of policy renewal. The situation is the same for obsolete car models as its value is also fixed by a mutual agreement between the insurer and the car owner.

Why is It Important to Determine the Correct IDV for Your Car Insurance?

The IDV of a car plays an important role in a comprehensive car insurance policy. There are two aspects of car insurance that are directly impacted by the IDV of a car. The first one is the car insurance premium and the other one is the claim amount. Take a look at how your car’s IDV can affect your car insurance premium and the maximum claim amount you will get.

Car Insurance Premium

The IDV of a car is directly proportional to the premium of a comprehensive car insurance policy. The higher the IDV of the car insurance plan is, the higher will be its premium. This is why it is important to opt for an IDV amount that does not result in an expensive car insurance premium. You must keep your budget in mind while choosing a comprehensive car insurance policy. Make use of a car insurance calculator to check the IDV as well as the premium of a car insurance plan before buying.

Maximum Claim Amount

As you know, the IDV is the maximum claim amount that your car insurer will pay if your car gets stolen or witnesses a total loss. If you opt for a lower IDV, the claim amount that you may receive may be insufficient to cover the cost of repairing or replacing your car. As a result, you may have to pay money from your pockets over and above the claim amount received. That may cost you more than the money you saved by paying a lower premium. Therefore, you must choose a comprehensive car insurance policy with an IDV which is sufficient to cover the loss or damages of your car.

Hence, it is important to buy a car insurance policy that comes with sufficient IDV without charging an exorbitant premium.

Bottom Line

Car insurance is essential to get financial assistance from your motor insurer in case your car gets damaged or stolen. You must use a car insurance calculator to check the premium as well as the IDV of a car insurance policy before buying. Remember to choose a comprehensive car insurance policy with the right IDV so that you don’t end up paying a high premium or get an insufficient claim amount.

Written By: PolicyBazaar - Updated: 12 July 2021
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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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