IDV in Commercial Vehicle Insurance

What is IDV in Commercial Vehicle Insurance?

IDV, or Insured Declared Value, is the maximum amount an insurer is liable to pay if your commercial vehicle suffers a total loss or is stolen. It is the current market value of your vehicle after accounting for depreciation.

IDV is not the invoice cost, but the current value of the vehicle. So, as your commercial vehicle ages, its IDV decreases due to depreciation. This helps commercial vehicle insurance companies determine your commercial vehicle insurance premium. A higher IDV results in an increased premium amount, while a lower IDV reduces it due to the depreciation costs.

How to Calculate IDV of Commercial Vehicles?

IDV for a commercial vehicle is calculated after deducting the depreciation from the manufacturer's listed selling price. Insurers follow a standard depreciation schedule defined by IRDAI to calculate the IDV for your commercial vehicle insurance.

You can use the following formula to calculate the IDV of a commercial vehicle:

IDV = (Ex-showroom price - Depreciation) + Current Value of Accessories

Here is the applicable depreciation rates based on the age of the vehicle:

For commercial vehicles older than 5 years, the IDV is decided mutually by the insurer and the policyholder after considering the condition and market value of the insured commercial vehicle.

Why is the IDV of a Commercial Vehicle Important?

Selecting the right IDV directly impacts your premium and even the claim payout while filing for a theft or constructive total loss claim. A higher IDV gives you better financial protection and, in turn, increases your premium. On the other hand, a low IDV may reduce the premium, but does not fully financially cover the insured vehicle in the event of a total loss and reduces your claim amount.

For commercial vehicles that operate heavily, such as trucks, cabs, and cargo carriers, accurate IDV ensures your business remains financially protected in the event of unexpected major accidents or theft.

Factors That Influence the IDV of Your Commercial Vehicle

Some of the common factors affecting the IDV of a commercial vehicle are listed below:

1. Age of the Vehicle

   Insurers calculate IDV as per the age of the vehicle and the depreciation incurred. Hence, the IDV decreases every year by approximately 10% as your vehicle ages. This impacts and reduces your commercial vehicle insurance premium as well.

2. Make and Model

   Insurers consider your vehicle's make and model while determining its IDV. A high-end, heavy-duty commercial vehicle, such as trucks, tipper, agriculture tractors, etc., will have a higher market value and a higher IDV than light commercial vehicles, such as e-rickshaws, three-wheelers, cabs, etc.

3. Condition of the Vehicle

   For commercial vehicles older than 5 years, the IDV is also calculated based on their physical condition. If you have maintained your vehicle properly with minimal wear and tear and no major repairs, the IDV will be higher than that of vehicles that are in poor condition with visible damage or ageing parts, which reduce their market value and lower the IDV.

4. City of Registration

   The city where you register your vehicle affects its IDV. Metropolitan cities, including Delhi, Mumbai, and other Tier 1 cities, generally have higher vehicle prices due to greater demand and higher replacement costs. Because of this, insurers assign a higher IDV to vehicles registered in such cities as compared to those registered in smaller towns.

5. Additionally-Fitted Accessories

   When you add electrical and non-electrical accessories, such as GPS devices, carrier systems, music units, etc., to your commercial vehicle, it increases the vehicle's overall value. Insurers include the value of these accessories while calculating your premium and IDV, which increases both of them.

6. Modifications

   If you have modified your commercial vehicle in any way with performance upgrades, like turbochargers, engine tuning, or custom parts, such as fancy rims, the insurer may increase IDV because of the increased market value of your vehicle.

Conclusion

IDV is one of the most important components of commercial vehicle insurance because it determines both your premium and claim payout. Choosing the correct IDV helps you get fair compensation in case of a total loss or theft claim. Before buying or renewing your policy, always check and update your IDV to match the current market value. Ideally, the IDV should be 10% less than that mentioned on the previous policy.