What is IDV and Its Affect on Car Insurance Claims?
A car insurance policy is different from your basic life and health insurance policies. In the latter two, the coverage amount (Sum Assured) is selected by you and it remains constant throughout the policy tenure. In a car insurance plan, however, the coverage amount is not called the Sum Assured. It is called the Insured Declared Value (IDV). This Insured Declared Value reduces as your car ages. When you search and buy your car insurance policy, the Insured Declared Value determines the coverage value and affects the premium for your car insurance policy. So, what exactly is the Insured Declared Value? Let's find out :
Insured Declared Value (IDV) is actually the current market price of your car adjusted with depreciation for the age of your car. So, stated simply, the formula for IDV is :
The rate of depreciation increases with an increase in the age of the car. The applicable rate of depreciation is as follows :
|Age of the car
||Rate of depreciation
|Up to 6 months
|Above 6 months but up to 1 year
|Above 1 year but up to 2 years
|Above 2 years but up to 3 years
|Above 3 years but up to 4 years
|Above 4 years but up to 5 years
Let's understand the calculation of IDV with the help of an example :
|Cost of the car bought 3 years ago
||Rs. 7 lakhs
|Age of the car
|Current market price of the same car
||Rs. 7.5 lakhs
||Rs. 7.5 lakhs - 30% of Rs. 7.5 lakhs = Rs. 5.25 lakhs
Though the actual cost of the car was Rs.7 lakhs, to calculate IDV, the current selling price of the car is adjusted for the relevant rate of depreciation.
There are some points regarding IDV which you should know to understand it better. Here are such points :
Insurers compute IDV as a standard average value across the country, for ease of operations. IDV varies across insurers. Though IDV is computed based on the current selling price of the car, insurers adopt a standard value when computing the IDV. Since different insurers adopt a different value, the IDV differs among them.
You, as a policyholder, can negotiate the IDV with the insurance company. You can get the insurer to increase the IDV based on the currents selling price of your car.
IDV also varies across states because the applicable taxes are different across different states. These taxes influence the selling price of the car which in turn influences the IDV.
The applicable rate of depreciation is available only for cars up to 5 years old. If the car is older than 5 years, you, the policyholder, would have to negotiate with the insurance company and fix an IDV for your car on mutual agreement.
In IDV computations, the registration cost of the vehicle and the insurance cost are not taken into consideration.
The IDV of accessories, whose values are not included in the selling price of the car, would be calculated separately. This IDV would then be added with the car's IDV to arrive at the applicable IDV.
The premium of your car primarily depends on the car's IDV.
The Insured Declared Value (IDV) is relevant in case of theft of your vehicle or in case of a total loss. Let's see how :
Theft of your vehicle
In case of theft of your car, the insurance company is liable to pay the applicable IDV of your vehicle. If, during any policy year, your car gets stolen and is not recovered, the IDV of the policy as in that policy year is payable as motor insurance claim.
Total loss of your vehicle
If your vehicle is badly damaged and the cost of repairs exceeds 70% of your IDV, it is called a total loss. In case of such total loss, the claim payable would be the IDV after deducting the wreck value of the car. The wreck value is the salvage value of your damaged car. Since a car insurance policy is an indemnity policy, the wreck value is deducted from the IDV and then the claim is paid.
So, the IDV is, in essence, the Sum Assured of your car insurance policy. It affects the claim amount in case of theft or total loss. So, you should select a higher IDV for your car to protect its value.