Understanding Insured Declared Value

When you buy or renew a car insurance policy, it is suggested not to blindly purchase one that has a lower premium. If the insurance premium of a car insurance policy is significantly lower than other alternatives available, then the possibility of lower coverage offered in the former policy is high. You should remember that a significantly lower insurance premium is given on behalf of the lower Insured Declared Value or IDV of your car. So, you must completely understand the implications of IDV on your 4 wheeler insurance.

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What is Insured Declared Value or IDV

Insured Declared Value or IDV is the utmost value for which your vehicle is insured in situation of theft or complete loss in a specific year. It decreases as your car gets old with time. The IDV is a mutually agreed value between the insurance company and you (as the insured) and is set at the starting of your car insurance policy every year. The premium of your comprehensive insurance policy is calculated according to this value. For the same rate of premium, lower Insured Declared Value (IDV) implies lower premium, and higher Insured Declared Value (IDV) means a higher premium.

What Does Happen When You Decrease Your IDV?

Most insurance companies allow you to select an IDV within a specific pre-defined range. The reason for the same is clear – the IDV of your car does not only depend on the current depreciated value of your vehicle but also its market value. So, you can choose a comparatively lower IDV to reduce the payable premium. You can do the same by visiting your insurance provider's portal.

How Would You Be Affected?

Lowering the Insured Declared Value or IDV below the market value of your car means that you are going to insure your car for less than what it’s worth and this means that you will get lower IDV as compensation in case of total loss or theft of your car. By entailment, it signifies that you are taking some of the total losses (to the extent the Insured Declared Value is less than the real market value of the vehicle) and would also have to bear various losses in such events.

For example, if the IDV of your car is Rs. four lakhs, then even the best car insurance provider would compensate claims worth Rs. four lakhs in an accident that results in complete loss or theft. However, if you have lowered the Insured Declared Value of your car to for example Rs. 3 lakhs at the time of purchasing your car insurance policy, the insurance provider would compensate only those claims that are worth Rs.3 lakhs. Therefore, it is always best to get the insurance of your car for the correct Insured Declared Value (IDV) to make sure that you get the right amount in case of a claim. Do not try to reduce the IDV of your car just because of the lower premium as this may lead to high risks.

The Importance of IDV

So, you can feel the importance of IDV at the time of making a claim. Since under this maximum liability is undertaken by the insurance provider, Insured Declared Value or IDV is paid in the below-mentioned claim example:

Mr. Robin bought a car insurance policy for his brand new car from a car insurance provider that offered him the lowest premium. However, he did not pay any attention to the IDV of his insurance policy. After few months, his insured car suffered some serious damages due to an accident that resulted in total loss. Unfortunately, because of the low Insured Declared Value, the amount of claim could not fulfill Robin's expectations which lead to capital loss.

How to Calculate IDV?

Insured Declared Value or IDV is calculated by your insurance provider. The insurer calculates the IDV as per the market value of your car after deducting the depreciation as per your vehicle’s age. The formula that is used to calculate the IDV is:

IDV = The listed price of your car as per its manufacturer – depreciation mentioned in the Indian Motor Tariff

The listed price of your vehicle is known as its ex-showroom price, and it excludes the registration cost, its insurance, and all other loadings.

Additionally, if your vehicle has some additional accessories, the cost of these is not included in the listed price. IDV also includes the price of such accessories after deducting depreciation. For such instances, the IDV is calculated as per the following formula:

IDV = (The listed price of your car as per its manufacturer – depreciation mentioned in the Indian Motor Tariff) + (Value of additional accessories – their depreciation)

The depreciation rate applicable to calculate the IDV is mentioned below:

Vehicle’s Age

Applicable Depreciation

Up to 0.5 years or six months

5%

Six months to one year

15%

One year to two years

20%

Two years to three years

30%

Three years to four years

40%

Four years to five years

50%

If your car is more than five years old, then its IDV is settled as per its current condition, its serviceable parts that are available in the market, and the mutual understanding between the policyholder and insurance provider.

IDV and Premium of Car Insurance

As mentioned earlier IDV signifies the value of your vehicle, it is proportional to your insurance policy’s premium. This means that if the Insured Declared Value of your vehicle is high, its premium will also be high and vice-versa.

How to Choose the Correct Value of IDV for Your Car?

As IDV determines your car insurance policy’s premium, many of us are tempted to opt for lower IDVs while buying an insurance policy. However, you must avoid this. Selecting the correct IDV is necessary because it not only affects the premium of your insurance policy but also affects your insurance claim amount.

As mentioned earlier, if you choose an IDV that is lower than the market value of your car, you may end up getting a very low amount of claim, if your car is completely damaged or stolen. This claim would not be enough to pay for a replacement of the car and may cause financial strain. This is the reason it is essential to select an IDV that is closest to the market value of your car after subtracting the depreciation.

Saying that selecting a very high IDV is also not a good choice if you opt for very high Insured Declared Value, you may end up paying high premiums without any reason.

Therefore, you should always be careful while selecting the Insured Declared Value (IDV) of your car insurance policy. It has to be ideal, not much, and not less.

The Final Words!

So, the next time when you compare your car insurance policy to renew or buy a new policy for it, do not forget to consider IDV. With coverage features and premiums of the policy, you should also keep an eye on IDV. Having an ideal IDV is equally necessary as paying the accurate premium, and you must, therefore, select the most optimal Insured Declared Value for your car.

Written By: PolicyBazaar - Updated: 31 August 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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