Insured's Declared Value (IDV) in Car Insurance

IDV = (Manufacturer's Selling Price - Depreciation Cost) + (Cost of Accessories - Depreciation of These Accessories) 

1. Excluding Accessories:

IDV = Manufacturer's Selling Price - Depreciation Cost 

Insured Declared Value (IDV) of Popular Car Variants:

The following is the list of IDV of the popular car variants: 

Factors Influencing a Car's Insured Declared Value (IDV):

Several factors associated with your car play a crucial role in determining its IDV. Here are the key factors: 

1. Age of the Car: The age of your car significantly impacts its IDV. Older vehicles have lower market values, resulting in a lower IDV compared to brand-new cars. 
2. Type of Car: Different car types are available in the market, such as hatchbacks, sedans, Sports Utility Vehicles (SUVs), and Multi-Utility Vehicles (MUVs). The type of car affects its value, with hatchbacks typically having a lower IDV compared to sedans or SUVs. 
3. Car Model: Various car models within the same type, like sedans, can have varying IDVs. This depends on the manufacturer and the features offered in a particular model. 
4. Location of Purchase: The cost of a car can slightly differ based on the location of purchase. For instance, the ex-showroom price of the same model might vary between Mumbai and Delhi.  
5. Depreciation: Depreciation represents the decrease in the car's monetary value due to its age. Older cars experience more significant depreciation. For example, two cars of the same model may have different IDVs because they were manufactured in different years. 
6. Accessories: Depreciation of accessories is also taken into account when calculating the IDV. Thus, the IDV may change based on the age and condition of additional accessories. 

Impact of Insured Declared Value on Car Insurance Policy:

IDV, which represents the sum insured amount in an insurance policy, has a direct impact on your Comprehensive Car Insurance Policy premium. Here's how IDV affects your policy: 

1. Valid Only on Comprehensive Plan: IDV is a crucial component of a Comprehensive Car Insurance Policy. It is not required to declare the IDV when purchasing a Third-party policy since the car is not covered for damages. Third-party insurance specifically covers third-party liabilities. 
2. Directly Affects the Premium: When using the IDV calculator during the policy purchase, you will observe a direct correlation between the IDV amount and the premium. If you increase the IDV, your premium will also increase. Conversely, if you decrease the IDV, the premium will decrease accordingly. 

How Does Insured Declared Value Impact Car Insurance Premium?

The relationship between your car insurance premium and the Insured Declared Value (IDV) is interconnected. A higher IDV corresponds to a higher car insurance premium, and conversely, a lower IDV results in a lower premium. As your car's value depreciates, the premium also decreases. When you sell your car, a higher IDV can fetch you a better selling price. Nevertheless, various factors like the car's condition, usage, previous car insurance claims, and more are also considered. 

Opting for a lower IDV for your car can help reduce the premium, but it may result in a lower claim amount in the event of theft or a total loss. On the other hand, selecting a higher IDV can make you eligible for more substantial compensation. 

Advantages and Disadvantages of Low IDV:

The Insured Declared Value (IDV) is directly linked to your car insurance premium. If you choose to reduce the IDV using the IDV calculator, it will result in a lower premium. Let's explore the pros and cons of decreasing the IDV: 

Advantages: 

1. Reduced Premium: Lowering the IDV will lead to a reduction in your car insurance premium. 
2. Cost Savings: Paying a lower premium means you save money when purchasing the insurance policy. 
3. Financial Flexibility: The money saved can be utilised for other financial needs or investments. 

Disadvantages: 

1. Lower Sum Insured: Decreasing the IDV means the sum insured is reduced. Consequently, the claim amount will be lower in the event of a total loss. 
2. Potential Expenses: If the cost of accidental damage exceeds the reduced IDV, you might have to cover the additional expenses yourself. 
3. Reduced Claims: A lower claim amount can lead to financial loss in case of an accident or damage. 

Advantages and Disadvantages of High IDV:

The Insured Declared Value (IDV) has a direct impact on your car insurance premium. When you increase the IDV using the IDV calculator, it results in a higher premium. Let's examine the pros and cons of increasing the IDV: 

Advantages: 

1. Higher Sum Insured: Increasing the IDV means the sum insured for your car insurance policy will be higher. 
2. Enhanced Claim Amount: In case of a claim, you will receive a larger amount, which can be beneficial in covering repair costs. 
3. New Car Funding: A higher IDV can provide the necessary funds to purchase a new car in the event of vehicle theft or a total loss. 

Disadvantages: 

1. Higher Premium: Increasing the IDV leads to a higher car insurance premium, resulting in increased insurance costs. 

1. Potential Underutilisation: If you never have a total loss claim, the additional premium paid might not be fully utilised. 
2. Excessive Spending: Paying more for a higher IDV without a corresponding claim can result in financial loss. 

IDV and Claims:

In most car insurance claim cases, the Insured Declared Value (IDV) is not needed to calculate the claim amount. However, when purchasing a Comprehensive Car Insurance policy, it's essential to declare the IDV every year. The IDV of your car decreases over time due to market value depreciation. IDV is relevant for claim settlement in specific situations: 

1. Theft: In the event of vehicle theft declared by the police as 'non-traceable', a claim can be raised. The provider will settle the claim amount, which is typically equivalent to the IDV of your car. 
2. Constructive Total Loss: If a vehicle sustains extensive damage due to an accident or contingency, the provider will assess the damage's extent. When the repair costs exceed 75% or more of the car's IDV, it's considered a total loss claim. 
3. Total Loss: In unfortunate situations where the car is damaged beyond repair, a Total Loss claim can be raised. The IDV of the car plays a role in determining the claim settlement amount in such cases. 

Total Loss Claims - Depreciation of a Car with Age:

Every vehicle depreciates with time. Apart from the wear and tear incurred with usage, the age of the car also contributes to its depreciation value. In fact, the depreciation on a car is applicable from the time it is driven out of a showroom! So, a brand new car that may be a day old is also considered to have depreciated in value by 5%.

The rate of depreciation considered to be effective across the motor insurance industry is as elucidated in the table below:

As indicated in the table above, for vehicles that are more than 5 years old, the depreciation factor is not considered for calculation of IDV. It is based on vehicle assessment done by surveyors appointed by the insurer. Following the survey, the stakeholders arrive at a figure for the IDV on the basis of mutual agreement. The type of the car, make and model, and its availability also play an important role in deciding its IDV.

A vehicle is tagged as constructive total loss (CTL) when the cost of retrieval/repair exceeds 75% of its IDV.

Depreciation of Car Parts for Claims Pertaining to Partial Loss:

For partial loss claims the depreciation is applied on the car parts. The following rates are applicable for the replacement of parts for all categories of four-wheelers:

1. The rate of depreciation for nylon/plastic parts, rubber parts, tubes and tyres, batteries, and airbags is 50%
2. The depreciation rate for fibreglass parts is 30%
3. For all car parts made of glass, the depreciation rate is nil.
4. The rate of depreciation for all other parts is as per the following table:

IDV and Car Insurance Premium

The amount you will pay directly relates to the vehicle's IDV. This suggests that when an automobile gets older, the premium would go down. This makes perfect sense from the policyholder's point of view because it is not economical to pay a high premium to insure an outdated car.

IDV and Car Insurance Renewal

Your car's value changes annually as a result of depreciation. Therefore, you should not merely consider the price quote the insurer provides you when renewing your auto insurance. Verify the IDV you will receive after paying that premium. The value of an insurance coverage increases with the IDV for each rupee of premium.

Another point to note is that when you get a "discount" in car insurance from an insurance company, you should look at the coverage carefully. It is quite probable that the insurer is offering the discount for any of the following reasons:

1. The IDV of your vehicle has been reduced in the policy documentation
2. The insurer has added a voluntary deductible that you will have to pay at the time of a claim
3. The standard policy benefits have been reduced

If you are renewing car insurance online, there is more clarity on the coverage, as you can read through the policy terms and conditions before making a payment.

You may have observed that different insurance providers offer you policies with varying IDV values for your car at the time of policy renewal. Which one should you choose then? It should be noted that different premium estimates would result from different IDV between policies. Always choose the insurance with an IDV that is closer to the actual value (based on the depreciation table for total loss claims above). You ought to purchase such a coverage if the premium falls within your price range. Additionally, after purchasing the policy, go over the cover notes to make sure the values you agreed upon are reflected in the policy papers.

Why is IDV Important?

The following are the primary importance of IDV: 

1. Insured Declared Value (IDV) is the soul value of car insurance.
2. IDV determines the premium amount. 
3. If IDV is high, the premium amount will also increase. 
4. Lowering the IDV value of your vehicle may not be advantageous for you as that would be your loss.

Points to Keep in Mind While Calculating IDV of a Car:

Here is the list of points that should kept in mind while calculating the IDV of a car: 

1. In case of the total loss or theft of your car, the maximum amount of compensation which you will receive is the Insured Declared Value (IDV).
2. Before agreeing with the IDV set by the insurer, check with the car insurer after doing a thorough research.
3. To reduce the premium of the policy, do not lower the IDV as that would decrease the claim amount.
4. Check the car insurance premium based on the IDV of the car. 
5. To get sufficient coverage to insure your car, you can negotiate with the insurer to get your desired IDV. 

GST Update: GST of 18% is applicable on car insurance effective from the 1st of July, 2017.