Confused About IDV in Car Insurance? Let’s Decode It

3 Reasons Why You Shouldn't Buy Car Insurance from Your Car Dealer | Chola  MS

Paying that booking about for your car is surely ticking off one of the items of your bucket list. But that doesn’t end it all. There are further formalities like finance, registration and insurance that need your attention. Once the car loan is set in place, the dealer looks after the registration formalities. But that still leave out insurance to be tackled. 

While car dealers have recommendation for an insurance cover, it isn’t the one that you need to go with. You have the option of choosing a suitable insurance plan based on your requirements. For that, you need to familiarise with the different terminologies and jargons spread across car insurance policies. One crucial term is the Insured Declared Value or IDV. This article aims to decode IDV to make it simple for you know what it is and how it impacts your car insurance cover. Let’s have a look:

What is IDV in motor insurance?

IDV is the maximum amount that insurance companies pay as per the terms of the insurance contract. Accidents resulting in total loss, constructive loss, or theft, bring IDV into the picture. Often misconstrued to be the resale value of the vehicle, but in reality, IDV is the approximate value of the car/bike. Also, it is a crucial component in determining car insurance premiums. * Standard T&C Apply. 

Here are four facts that establish the importance of IDV:

#1 IDV is equal to the sum insured of your car insurance policy

The maximum amount that you shall receive as compensation for damages to your vehicle is the IDV. The IDV is arrived after deducting the depreciation from the present value of the car. Motor insurance policies have no limit on how many times you can raise a claim, but the IDV is the maximum amount paid as the pay-out. This IDV needs to be determined when buying your car insurance policy. To summarise, it is the approximate current value of your car unlike resale value which is commonly misconstrued.

#2 Car insurance premiums are impacted due to changes in IDV

Since IDV is the maximum risk that the insurance company must undertake for your car, changes in IDV have a direct bearing to premium amount. So, if you overstate the IDV, it will result in inflated premiums while understating will have negative impact on the compensation. Hence, insurance companies offer a pre-determined IDV according to their best judgement based on the vehicle information provided. However, you are free to modify such pre-determined IDV based on your requirements and can make use of a car insurance premium calculator.

#3 Depreciations impacts IDV

Like all machineries and equipment are prone to the effect of depreciation, cars and bike are no exception. The following formula helps to arrive at the IDV which considers depreciation on your vehicle:

Insured declared value = (Listing price of the manufacturer – Depreciation) + (Accessories purchased additionally – Depreciation on such additions)

Thus, the depreciation in proportion to your car’s age lowers the IDV. * Standard T&C Apply

#4 The rates of depreciation are standardised

IRDAI has standardised the rate of depreciation to arrive at the IDV. They are as follows:

Age of the vehicleDepreciation for the purpose of IDV
Not more than 6 months5%
More 6 months but not more than 1 year15%
More 1 year but not more than 2 years20%
More 2 years but not more than 3 years30%
More 3 years but not more than 4 years40%
More 4 years but not more than 5 years50%

For vehicles that are above 5 years of age, the depreciation is mutually decided by the insurer and policyholder. * Standard T&C Apply

With the above stated facts, it strengthens the importance of IDV in car insurance plans. Please note that insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.