A valid four-wheeler insurance policy is mandatory for all car owners in India. So, when buying car insurance online, you must decide on your car’s Insured Declared Value (IDV), as it will directly impact your four wheeler insurance premiums.
IDV in car insurance is also a deciding factor in the coverage received when filing claims. This prompts many people to ask, “Is stating a higher IDV for car insurance better?”. Read on to find out if this is true and to learn how you can calculate your car’s IDV the next time you need to buy car insurance.
What is IDV in Motor Insurance?
The Insured Declared Value (IDV) is the maximum amount the insurance company will pay you for total vehicular loss due to an accident or theft of your vehicle. It is also known as the existing market value of your car.
It is based on your car’s present value and depreciation factor, which depends on the age of your car. This amount will need to be declared by you when you buy car insurance or renew your policy.
A lower IDV means a lower insurance premium, and a higher IDV attracts a higher premium.
How Important is IDV in Car Insurance?
- Determines Sum Insured and Premium Amounts: Your car insurance IDV determines your car’s coverage and insurance premiums. For example, a higher IDV indicates more coverage and higher premiums when buying car insurance online.
Moreover, the IDV for your car insurance shrinks every year on renewal (due to depreciation), and so do your premiums.
- Determines Reimbursement Cost During Claims: In cases where you have declared a lower IDV than your car’s current market value, your claims reimbursement amounts may not cover the total expense.
- Determines Reimbursement Cost During Total Loss: In cases of total loss or damages exceeding 75% of your vehicle, you will be reimbursed the total IDV amount.
Should I Increase My Car Insurance IDV?
Insurance companies allow policyholders to set their IDVs during policy purchase. As stated, high IDVs mean high premiums and higher coverage, while lower IDVs mean lesser premiums but also less coverage.
Your IDV will automatically decrease yearly on renewals as your car gets older due to depreciation. So it is recommended that you keep your car insurance IDV similar to your car’s current market value, as increasing it will also increase your premiums.
Moreover, setting up a higher IDV for older vehicles makes no sense, as the car’s value will decrease quickly, which further reduces its car insurance IDV.
How is Car Insurance IDV Calculated?
A car’s IDV is determined when buying a new four-wheeler insurance policy or during renewal. It is calculated by deducting the value of the car’s depreciated parts from its current market value. So the general formula is,
Insured Declared Value (IDV) = Current Market Value Of The Car — The Depreciation Amount
● IDV Calculation When Cars Have Extra Accessories or Modifications
Insurance providers also consider the depreciation cost of any modifications or accessories added to your vehicle.
IDV = (Present Market Worth Stated by the Manufacturing Company — Depreciation Costs) — (Accessory Costs — Depreciation Value of the Parts)
How To Choose The Right Car Insurance IDV
You must first understand how depreciation works to choose the right IDV when buying your four-wheeler insurance.
The IRDAI has a fixed depreciation schedule for cars as per their age. Insurance companies use this schedule to calculate the vehicle’s depreciation percentage that will be deducted from its market value to calculate the right amount of IDV for each vehicle.
Here is the table for your reference:
| Age of 🚘 | Depreciation (In %) |
| Maximum of 6 months | 5% |
| Over 6 months but not more than a year | 15% |
| Over 1 year but below 2 years | 20% |
| Over 2 years but below 3 years | 30% |
| Over 3 years but below 4 years | 40% |
| Over 4 years but not below 5 years | 50% |
Conclusion
Your car insurance IDV is an important factor that determines your coverage amount and the premiums for your four-wheeler insurance. Hence, it is recommended that you avoid setting an IDV that is either too high or too low and try to keep it close to your vehicle’s current market value.
Moreover, car insurance IDV is only one factor determining your premium amount.
So when buying a car insurance policy from reputed insurers like Tata AIG, it is best to compare plans with each other. This gives you a comprehensive view of the policy’s other benefits and the IDV value. It will help you determine whether the policy is worth buying.
