Although post-COVID, the motor insurance industry saw a lull, it is now estimated to be worth 1 trillion in 2024. With this wide market, many individuals, especially those new to motor insurance, can become overwhelmed with some bike and car insurance jargon, like the IDV.
IDV, or the Insured Declared Value of your bike or car, is perhaps one of the most important aspects of insurance which can have a direct impact on your premium and claim experience.
Therefore, in this article, we are going to look into the significance of accurately determining IDV and the impact it has on your motor car insurance including zero depreciation car insurance. So, if you are planning to buy your car insurance online, keep reading, as calculating IDV is a crucial step.
What is Car Insurance IDV?
IDV for car insurance refers to the amount insured or the maximum amount the insurance holder will get if they file for a claim. Over the year, the IDV value is subject to normal wear and tear and depreciation.
So, IDV is the market value of your vehicle at a particular point in time, which is used to determine your insurance premium and settlement amount.
Therefore, if your car is expensive, that is, it has a higher market value, then you will have a high IDV. This will directly lead to a higher premium as the repair expenses will be high in case of some loss, i.e., a huge settlement amount.
And, if your car has a low IDV, then you would have cheaper premium rates, and the payout will also be less when you file for claim settlement.
How is IDV in Motor Insurance Calculated?
1. IDV for a brand-new car
When you calculate IDV in motor insurance for a new car, then you take into consideration the showroom value minus depreciation.
Formula
IDV Value = Selling Price of Manufacturer – Depreciation Cost.
2. IDV for existing car
The IRDAI (Insurance Regulatory and Development Authority of India) has listed standard depreciation rates for existing cars. These rates must be used for accurate IDV calculation.
| AGE OF YOUR CAR | DEPRECIATION FOR IDV |
| Up to 6 months | 5% |
| 6 months to 1 year | 15% |
| 1 to 2 years | 20% |
| 2 to 3 years | 30% |
| 3 to 4 years | 40% |
| 4 to 5 years | 50% |
| 5 years and beyond | To be mutually decided by the policyholder and the insurer |
3. IDV when you have accessories
The formula changes a bit, wherein the depreciation cost for the vehicle, as well as accessories, is taken into consideration.
Formula
IDV Value= ( Selling Price of Manufacturer – Depreciation Cost) + (Accessories Cost – Depreciation of Accessories).
If you make changes to the accessories during renewal, make sure the new values are factored into the updated IDV.
Significance of Determining Correct IDV in Car Insurance
1. Buying or renewing insurance
So, the rule is the same if you are buying or renewing your car insurance online. If your car IDV is high, then you will have to pay a high premium. And if the IDV is calculated low, then you will be charged a low premium. It must be noted that declaring a high IDV may result in a higher premium, whereas declaring a lower IDV will get you a lower sum insured.
2. When making a claim
If you face an accident and the car gets damaged beyond repair, then the insurance provider will pay equal to the car’s IDV in the event of an accident. Also, if the damages are not severe, the repair and replacement expenses of the car’s parts are also based on its IDV.
3. Accuracy is key
It is essential to accurately determine the IDV (Insured Declared Value) of your car insurance. A simple mistake in your calculation can lead to losing the claim amount you are entitled to.
Consider this: if you set your IDV too high, it may result in a higher sum insured but also a higher premium. In case you don’t need to raise a claim, you may not be able to fully benefit from a higher IDV.
Whereas, if you set your IDV too low, you may enjoy a lower premium but for a low sum insured. In case of claims, if the damages are more than the IDV, you may have to pay them from your pocket.
Hence, ensure you calculate accurate IDV for your vehicle.
Conclusion
So all these factors make IDV the most crucial aspect while buying or renewing insurance for a car, as that is the exact amount your insurance company will pay if your car gets stolen or you face an accident.
