How IDV Affects at the Time of Commercial Vehicle Insurance Renewal?

What is IDV in Commercial Vehicle Insurance?

IDV or Insured Declared Value for commercial vehicles is the current and depreciated value of the insured vehicle after accounting for depreciation. It represents the maximum amount your insurer will pay if the vehicle is declared a total loss or is stolen and not recovered. However, it is important to understand that the IDV only affects the own damage premium of the commercial vehicle insurance. It does not affect the third-party liability premium, as it is pre-determined and fixed by the IRDAI (Insurance Regulatory and Development Authority of India).

Factors Affecting IDV of Commercial Vehicles

The IDV of a commercial vehicle keeps on reducing over the years due to the applicable depreciation. Since the IDV is the main factor that affects your renewal premium, the premium also reduces with a decrease in the insured declared value. Here are some of the key factors that affect the IDV of your insured vehicle during renewal include:

• Age of the commercial vehicle
• Manufacturer and model
• Type of commercial vehicle (truck, bus, taxi, goods carrier, etc.)
• Depreciation as per insurer guidelines
• Vehicle's overall condition and usage
• Any modifications or accessories covered under the policy

It is calculated using the following formula

IDV = (Ex-showroom price - Depreciation) + (Cost of accessories - Depreciated value of accessories)

How Does IDV Affect Commercial Vehicle Insurance Renewal?

Let us understand the impact of IDV on your commercial vehicle insurance premium:

1. Direct Relation with the Renewal Premium

   The premium of the OD component of your comprehensive commercial vehicle insurance. If your IDV is higher, the premium will also be high. Meanwhile, the premium will reduce when the IDV decreases. Therefore, selecting an appropriate IDV helps in setting an accurate premium with adequate coverage. The IDV is generally set by reducing 10% of the previous year's IDV as per the policy term or by using the following depreciation values:

   Age of the Commercial Vehicle	Depreciation (%) for IDV Calculation
   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%

   Note: For commercial vehicles that are more than 5 years old, the IDV is generally determined based on the vehicle's mutually agreed market value between the insurer and the policyholder.

2. Determines Total Loss Compensation

   If your commercial vehicle is damaged beyond repair (more than 75% of its value) due to an accident or natural calamity, commercial vehicle insurance companies will compensate you with the applicable IDV. Due to the same reason, the IDV plays an important role in deciding the premium and if you set a low IDV, it will result in a lower compensation in such claims.

3. Affects Theft Claim Settlement

   In the event of theft where the commercial vehicle is not recovered, the insurer generally settles the claim based on the vehicle's IDV as per the policy.

What if the IDV is Low for a Commercial Vehicle?

Opting for a lower IDV may seem attractive because it reduces the insurance premium. However, it can have several drawbacks:

• Reduced compensation in case of total loss
• Lower settlement amount in theft claims
• Increased out-of-pocket expenses when replacing the vehicle
• Inadequate financial protection for business operations

A lower premium should not come at the cost of insufficient insurance coverage.

What if the IDV is High for a Commercial Vehicle?

Selecting a higher IDV offers greater financial protection but also increases the own damage premium.

However, insurers generally determine the acceptable IDV range based on the vehicle's market value. Choosing an IDV significantly higher than the vehicle's actual market value does not necessarily result in a proportionately higher claim settlement.

How to Choose the Right IDV for a Commercial Vehicle?

Consider the following while selecting the IDV for your commercial vehicle:

• Check the vehicle's current market value.
• Consider the age and condition of the vehicle.
• Avoid selecting a low IDV to reduce the premium or a high IDV for an increased compensation.
• Factor in the depreciation

How to Change the IDV at the Time of Renewal?

You can easily change your IDV during commercial vehicle insurance renewal. Insurers generally allow policyholders to choose an IDV within the permissible range specified by the insurer.

If you have made significant modifications or installed additional accessories that affect the vehicle's value, inform the insurer so they can assess whether these can be covered under the policy.

Tips to Make the Right IDV Decision

• Compare renewal quotes from multiple insurers.
• Review the suggested IDV before renewing the policy.
• Do not underinsure the vehicle to save a small amount on premium.
• Consider the vehicle's earning potential and replacement cost.
• Discuss the appropriate IDV with your insurer if unsure.