IDV in Car Insurance

Owning a car in India is a significant achievement for many. When we decide to buy a car, we carefully consider various aspects, including selecting the right car insurance to ensure our vehicle is adequately protected. However, car insurance can be confusing, especially with terms like IDV or Insured Declared Value.

In this article, we will break down what is IDV in insurance, explain how it is calculated, go over important factors to consider, and discuss the pros and cons associated with IDV in insurance.

What is IDV in Car Insurance?

IDV, or Insured Declared Value, is the maximum amount you can receive from your insurance provider in case of an unfortunate incident involving your vehicle. It represents the highest coverage value under your car insurance policy. In simpler terms, it's the amount at which you insure your car.

The importance of IDV lies in its direct impact on your insurance premium. A higher IDV means a higher premium, while a lower IDV results in a reduced premium. Additionally, IDV determines the maximum amount you can claim during a loss or damage incident.

How is IDV calculated?

The insurance company determines the IDV by considering various factors such as the listed selling price, year of manufacture, etc. Additionally, the calculation considers general wear and tear, commonly known as depreciation, and the value of accessories not included in the original selling price. 

Let's break down the IDV calculation formula based on whether there are additional accessories:

• Without Added Accessories
IDV = Selling price of the car – Depreciation  

• With Added Accessories
IDV = (Selling price of the car – Depreciation) + (Cost of accessories not included in the listed selling price – Depreciation), excluding registration and insurance costs.

It's important to note that the IDV calculation excludes the registration and insurance costs of the car. Also, any accessories that are standard fittings in your car are not considered in the IDV calculation.

How Does IDV Affect Car Insurance Premiums?

Now that you know what does IDV mean in car insurance, here is how IDV affects your premiums: 

• Applicability Exclusive to Comprehensive Plans

Think of IDV as the leading player in Comprehensive Car Insurance. If you're going for a Third-party policy, you don't need to bother with IDV. Why? Because Third-party insurance is all about covering damages you might cause to others, not your car.    

• Direct Impact on Premiums

Now, here's the part that affects your wallet. When picking your Comprehensive Car Insurance and playing around with an IDV calculator, remember this: changing the IDV amount directly messes with your premium. Increase the IDV, and your premium goes up. Drop the IDV, and the premium becomes more budget-friendly.

Factors that Help to Determine the IDV of a Car

Understanding how the IDV of your car is calculated involves considering various aspects inherent to the vehicle. Let's take a closer look at the factors that contribute to determining the IDV in insurance:

• Age of the Car

The age of your car is a significant player in IDV. Simply put, the older the car, the lower its market value and, consequently, the lower its IDV. This makes sense because older cars usually have more wear and tear, affecting their overall worth.  

• Type of Car

Different types of cars come with different price tags. Smaller cars like hatchbacks are generally more affordable than larger ones like SUVs. This affordability factor is reflected in the IDV. The smaller the car, the lower the IDV, and vice versa.   

• Car Model

Even cars within the same category can have varying IDVs. This is influenced by factors like the brand's reputation, specific features, and manufacturing intricacies. A fancier or more feature-rich model will likely have a higher IDV than a basic version of the same car type.   

• Location of Purchase

Believe it or not, where you buy your car matters. Prices can vary from city to city due to differences in taxes, dealer pricing, and other regional factors. The location of purchase influences the ex-showroom price and, subsequently, the IDV.  

• Depreciation

As time goes by, cars naturally lose some of their value. This is depreciation, and it's a key factor in determining IDV. Older cars experience more depreciation, impacting their IDV. It's like acknowledging that a five-year-old car isn’t worth as much as a brand-new one.

• Accessories

If you've added extra goodies to your car, like an excellent sound system or custom rims, these accessories contribute to the overall value of your vehicle. The IDV calculation considers the depreciation of these extras, influencing the final IDV.

Advantages and Disadvantages of High/Low IDV

The Insured Declared Value is directly linked to the premium of your car insurance policy. If you choose to decrease the IDV using the IDV calculator, it has both advantages and disadvantages:

Advantages of Low IDV    

• Reduced Premium
Paying less for your car insurance – who doesn't like that? Decreasing IDV means a lower premium, saving you money.   

• Cost Savings
The money you save on insurance costs can be used for other things, giving you more flexibility in your budget.

Disadvantages of Low IDV    

• Lower Sum Insured
If something happens to your car, like a total loss, the money you get from the insurance claim will be less because the sum insured is lower.   

• Out-of-Pocket Expenses
You might have to chip in extra money if the repair costs are more than the reduced sum insured.   

• Potential Loss
Getting less money during a claim means you might face a financial loss.

Similar to decreasing IDV, increasing the Insured Declared Value using the IDV calculator has its set of advantages and disadvantages:

Advantages of High IDV   

• Higher Sum Insured
Bumping up the IDV means a more significant sum insured, providing more coverage for your car.   

• Increased Claim Amount
If something happens, you get more money from the insurance claim, which can be helpful.   

• Financial Support for Replacement
If your car gets stolen or faces a total loss, the increased IDV ensures you have enough money to buy a new one.

Disadvantages of High IDV   

• Higher Premium
A bigger IDV also means a more considerable premium. You're paying more for the increased coverage.   

• Possibility of No Claim
If you never need to make a claim for a total loss, you might be paying extra for nothing.    

• Potential Overpayment
Paying more for insurance than you need could lead to a financial loss if you never use those extra benefits.

What are the current depreciation rates?

Let's simplify the current depreciation rates for the Insured Declared Value adjustment in your car insurance, following the India Motor Tariff:

If your car is over 5 years old, figuring out the IDV is like solving a puzzle. It depends on your car's condition, who made it, its model, and if spare parts are still hanging around.

Conclusion

In conclusion, understanding your car's Insured Declared Value (IDV) is key to smart insurance decisions. Keep an eye on depreciation rates, adjust your IDV wisely, and strike the right balance between premium costs and coverage. Whether your car is a sleek new model or a reliable old companion, aligning your insurance with its worth ensures you're well-protected.