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Does It Make Sense to Increase Your Car's IDV?

Meeta Sabnis Meeta Sabnis 12 February 2016

A car’s Insured Declared Value or IDV is the most important factor for determining its comprehensive car insurance cover premium. But what makes more sense – increasing or decreasing the IDV?

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The all-important Insured Declared Value (IDV) is the maximum sum insured amount agreed upon by your insurance provider that will be reimbursed to you (the vehicle owner/ policyholder) in the event of theft or partial/complete loss. In other words, IDV is the supposed current market worth of your insured automobile. One arrives at this value, on the basis of the manufacturer’s present value and depreciation based on the vehicle’s age.

Why Insured Declared Value or IDV is Important?

Let’s explain this with, not with theory, but an example.

For example, Own Damage cover is a beneficial yet optional cover that compensates you in case your car is said to be totally lost due to an accident or calamity. The premium for Own Damage (OD) cover is calculated as a percentage of IDV. This premium is up to 2-3 percent of the IDV, basis the age and cubic capacity of the vehicle. Simply remember, the greater the IDV, the higher is the premium and vice versa. So if you haven't calculated the IDV for your car, it will be nearly impossible to arrive at the OD premium.

Now a few automobile owners will think that it is best to declare lower IDV than the market value. That is simply because your car's OD premium is directly proportional to the IDV; lower the IDV, less the premium you pay. A lower IDV might help you save on premium, but it will also imply that you'll be compensated with a lower claim amount in case of an accident, if an incident of this nature were to occur.

On the other extreme, few others might think that declaring a higher IDV is a good idea, assuming that the claim amount will accordingly increase, or that based on this if they were to sell their vehicle it would command a higher price than the actual market value. That is not always the case. At best, IDV is the maximum sum insured amount that the insurance company pledges to compensate for your loss.

Getting an IDV that is close to the market value of your car is always the best bet. Decreasing the IDV value will result in lower premium but it also provides you with a lower coverage than is required. As your car grows older, the IDV decreases as it is.

Calculate your IDV

Here is a schedule of depreciation for arriving at a car’s IDV.

Age Of Vehicle% Of Depreciation For Calculating IDV
Upto 6 Months5%
6 Months to 1 Year15%
1 - 2 Years20%
2 - 3 Years30%
3 - 4 Years40%
4 - 5 Years50%

It is always the case that the IDV of old vehicles (that is, of ones above the age of five years) is calculated by mutual agreement between insurer and the insured. In this case, IDV will depend on the manufacturer, car’s model and availability of the spares parts. Instead of depreciation, IDV is then arrived at by assessment of the vehicle’s condition and carried out by the dealers or the insurance surveyors.

The IDV of the car is fixed depending on the manufacturer's listed selling price of the brand and model, as of the vehicle proposed for insurance before purchasing an insurance scheme or at the time of policy renewal, and adjusted for depreciation. The IDV of the accessories fitted to the motor but not included in the manufacturer's listed selling price is also to be fixed in s similar fashion.

Check the IDV at time of insurance policy renewal

Car insurance is a feature that along with the insurance coverage, and possibly also the premium, that necessarily should change every year. When your policy is up for renewal, do not simply agree to pay what your insurer asks you to. Check the IDV of your car and also whether the premium charged is justifiable or not. If you are unhappy with the figures, negotiate or change your insurance service provider. Make sure you receive the right kind of coverage at the right kind of cost.

Pay special attention to this feature when renewing your comprehensive or OD motor insurance policy. As you know, the premium you pay is determined by this factor. So if your car has a higher value, you end up paying more premium and vice-versa. This is also the right time to adjust the IDV value, increase or lower it, as per your choice. This is certainly possible when you choose the online method to purchase or renew your auto insurance policy. Choose and you will keep coming back.

Keep an eye on the IDV

Buying insurance for your vehicle is a long term investment. And when you are claiming your insurance amount, you may not be getting the amount you are expecting. The main reason for the deduction in your reimbursements is IDV. Hence, IDV is the most important thing to check before buying your insurance.

Motor Insurance companies treat cars as liabilities that go through annual depreciation and their value plummets. But as the policy holder, the IDV is the maximum amount you can claim to compensate your losses relating to your car. So it is your right to preserve the right IDV value for your car. So, be prepared to your eyes open at all times.

Citation: Indian Motor Tariff

Meeta Sabnis
Written by Meeta Sabnis
Her mantra in life is to dream, and dream until you turn them into reality. A neurotic Kajol fan, Meeta loves spending time with her gorgeous twins, ensuring a childhood they’ll be proud of. Bargain hunting, crazy dancing and romancing alphabets are some of her other cravings. She’s currently a Content Writer at Coverfox.