What is IDV in Car Insurance?
Insured Declared Value (IDV) is the maximum sum insured fixed by the insurer which is provided on theft or total loss of the insured vehicle. Basically, IDV is the current market value of the vehicle. If the vehicle suffers total loss, IDV is the compensation that the insurer will provide to the policyholder.
IDV is calculated as the manufacturer’s listed selling price minus depreciation. The registration and insurance costs are excluded from IDV. The IDV of the accessories which are not factory fitted is calculated separately at extra cost if insurance is required for them.
How to Calculate IDV for Car Insurance?
An IDV calculator is considered one of the most important calculators under motor insurance as it helps car owners to determine the amount that they will be paid during total damage or theft of the insured vehicle.
IDV is calculated on the basis of the selling price that the manufacturer decides and the depreciation on its vehicle’s parts is deducted from it. The formula to derive the actual Insured Declared Value is mentioned below:
Insured Declared Value = (Company’s listed price – the depreciation value) + (Cost of vehicle accessories - the depreciation value of these parts)
The above-mentioned formula is to calculate the IDV for a new car that is equipped with extra accessories that were added after the purchase of the car. In case you do not have any such accessories in the vehicle, the IDV calculation is simple. You can easily calculate the Insured Declared Value of your car using the online IDV calculator. And the formula is enclosed below:
IDV = Manufacturer’s registered price – the value of depreciation
The depreciation applicable will be as per the table given above.
For instance - If your car’s value or IDV is fixed at INR 5 lakh at the time of policy purchase, the insurer will recompense a maximum amount in the event of total loss or damage that will be INR 5 lakh. It is imperative to know that you will get compensation only in case of constructive total loss or in case of theft of the car within the policy term.
Things to Keep in Mind While Calculating IDV of a Car
Make sure that you take into consideration the below-mentioned points to carefully assess the IDV of your car-
- The value of your car is derived by deducting the depreciation value from the actual market price. In any case, it is the maximum compensation that you will get in case of total loss or theft of your car.
- Correct valuation of IDV may cost you less car insurance premium
- Just to reduce the premium do not reduce the IDV of your car, as this would mean less claim or a disputed claim
- Right declaration of IDV would mean rightful claim
- Do your research or check with the manufacturer before agreeing to the IDV set by your car insurance companies
- Also, assess the premium cost and check if it has been correctly evaluated on the basis of your car’s IDV
- It is important that you get adequate coverage and are satisfied with the Insured declared value as it involves a lot of money. You can also negotiate to get the desired IDV.
- While renewing your car insurance plan, make sure that the cost of the premium is determined on the basis of the IDV. If your car’s market value as compared to the IDV is very high, this would mean an exorbitant premium in comparison to a car that costs lower
You can also fix your car’s IDV online, but this will vary from one insurer to another. It also gives you an opportunity to adjust your IDV while renewing your car, so make sure that you don’t miss a chance.
Depreciation Schedule to Fix IDV of a Car
The depreciation of a car is calculated on the basis of a rate table set by the Insurance Regulatory and Development Authority of India (IRDAI). The following table shows the depreciation rate that is used to fix the IDV of a car as per its age:
|Age of the Vehicle||% Depreciation for adjusting IDV|
|Not exceeding 6 months||5%|
|Exceeding 6 months but not exceeding 1 year||15%|
|Exceeding 1 year but not exceeding 2 years||20%|
|Exceeding 2 years but not exceeding 3 years||30%|
|Exceeding 3 years but not exceeding 4 years||40%|
|Exceeding 4 years but not exceeding 5 years||50%|
The IDV of vehicles aged over 5 years is calculated by mutual agreement between the insurer and the insured. Instead of depreciation, IDV of old cars is arrived at by assessment of the vehicle’s condition done by surveyors, car dealers etc.
Factors that Help to Determine the IDV of a Car
The following factors are taken into consideration by an IDV calculator while estimating the IDV of your car. Take a look:
- Age of the Car – The age of your car is one of the biggest factors that help determine the IDV of your car. The higher the age of your car would be, the lower will be its IDV.
- Make and Model of the Car – The make & model of the car helps to determine how high-end is the car and how high would be its repair cost. For example, the IDV of a BMW X7 would be higher than the IDV of a Hyundai Santro due to its higher cost and maintenance.
- Standard Depreciation – The depreciation schedule shown in the table earlier impacts the IDV of your car. The depreciation to the market value of your car is charged based on the percentage mentioned in the depreciation schedule.
- City of Car Registration – The city where your car has been registered also influences the IDV in car insurance. The IDV of a car registered and running in a metropolitan city like New Delhi will be open to more risks than the IDV of a car running in a small town in UP.
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How IDV Does Affects Car Insurance Premium?
The IDV of your car is directly proportional to your car insurance premium. This means the higher the value of IDV, the more will be the amount of premium charged to you. Similarly, as the IDV of your car will reduce with its increasing age, the premium amount payable by you will also reduce.
However, it is not advisable to opt for a lower IDV just to reduce your premium amount because it will result in losses. A lower IDV means you will receive a lower compensation amount in case of total damage or theft claims. The whole idea is to get an IDV closest to the market value of your car without paying enormous amounts as a premium.
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Why Should You Care About Your Car’s IDV?
The IDV of your car is crucial in determining the aspect of buying a car insurance policy. Besides determining the maximum compensation amount for your car, it also plays a vital role when it comes to ascertaining the premium of your car insurance policy.
The IDV is the key to the amount of motor insurance premium that you will pay for your car insurance. This is because IDV reflects the current market value of your car and mirrors the liability of your motor insurance company at the time of claim settlement.
Lower IDV means lower liability for the insurance provider and thus, a lower premium is charged and vice versa. However, there are other factors, such as the type of cover, geographic zone, add-on covers, etc. that also help arrive at the final premium amount for your car insurance policy.
That’s not all. The IDV of your car also plays an important role when you decide to sell it. If the IDV of your car is high, it will automatically fetch you a higher selling price. Similarly, a lower IDV will lead to selling your car for a lower price.
Although there are other factors, such as claims experience, that also affect the selling price of your car, you should be extremely careful when fixing the IDV for your car.
Advantages and Disadvantages of High/Low IDV
Take a look at the table given below to know the advantages and disadvantages of fixing a high or low IDV of your vehicle under car insurance:
|Nature of IDV||Advantages||Disadvantages|
|High IDV||Higher compensation will be paid during theft or total loss claims||Higher premium amount to be paid|
|Low IDV||Lower premium amount to be paid||Lower compensation will be paid during theft or total loss claim settlement leading to losses|
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Insured Declared Value FAQs
Ans: Ideally, the insured declared value or IDV of a new car should be equivalent to the invoice value of the car. However, depreciation is deducted even from the value of a new car because it has been sold for usage. Generally, the depreciation charged on a new car is about 5% and thus, the default maximum IDV of a new car stands at 95% of the invoice value of the car.
Ans: The moment a new car leaves the showroom, depreciation is taken into account to estimate the IDV. Up to the first six months of buying a car, most motor insurers levy only 5% of depreciation on the invoice value of the car. Therefore, the IDV of a car outside the showroom will be the ex-showroom value of the car minus 5% depreciation i.e. 95% of the invoice price of the car.
Ans: Whether you should go for a high IDV or a low IDV depends completely on the age and condition of your car. If your car is relatively new and is in a perfect condition, then going for a high IDV is ideal. However, if your car is older than five years and is not in a very good condition then it is better to avoid a high IDV and go for a low IDV.
Ans: IDV of car insurance is decided by taking into account the depreciation value of the car. However, motor insurance companies allow car owners to increase or decrease the set IDV by 15%. So if the IDV of your car is Rs 5 lakh as per the depreciation, you have the freedom to choose an IDV between Rs 4,25,000 and Rs 5,75,000.
Ans: The best IDV for cars or any other vehicle is the one which is the closest to the current market value of the car.
Ans: The IDV of your car may vary from one insurance company to another because insurers reduce the IDV to attract the customers by offering lower insurance premium. Lower IDV also reduces their liability, thereby, allowing them to pay lower compensation during claim settlements.
Ans: The IDV of a car reduces every year because the market value of the car reduces every year. This happens due to the depreciation in the car’s value with age and usage.
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