Insurance companies calculate car insurance premiums on the basis of IDV. If you are wondering whether higher IDV is better in car insurance, read on..
Is having high IDV considered to be better in car insurance?
The premium of your car insurance policy is determined on the basis of its insured declared value i.e. its existing market value. If you are thinking if higher IDV will benefit you at the time of claim then read on to know about how insured declared value works and if having a high IDV makes sense or not.
What is insured declared value in car insurance?
The cost of car insurance is determined based on the insured declared value which is the maximum amount the insurance company will pay in case of total loss or theft of the insured car.
In simple terms, it can also be called the existing market value of the car. IDV is calculated based on the present value of the car and depreciation factor which is based on the age of the car. A lower IDV implies a lower premium, whereas a higher IDV attracts a high premium.
Importance of knowing the insured declared value of your car
It is significant to have an idea of the insured declared value of the car as it is directly related to the premium you have to pay for your car insurance policy. Also, having an understanding would help you get a sense of the amount you will be eligible to receive at the time of claim registered in case of theft or total loss of the car.
How is insured declared value calculated?
Insured declared value i.e. IDV is calculated by deducting the value of the depreciated car parts. The higher the depreciation, the lower the insured declared value.
Usually, the below formula is used to calculate the insured declared value of a car
IDV = Current market value of the car - the depreciation amount
IDV is calculated at the time of car insurance purchase and also at the time of renewal. At the time of IDV calculation, the insurance company checks on the condition of the car, make and model details, availability of the existing car parts, etc.
Should I increase the IDV of my car?
Insurance companies allow policyholders to set the insured declared value of the car at the time of policy purchase. If you choose for a higher IDV, the premium of your car insurance policy will also be high. However, the claim amount given to you in case of theft or total loss of the vehicle will also be higher.
On the other hand, low IDV attracts a low premium due to which low compensation will be provided at the time of claim.
Hence, the best way to decide on the IDV of your car is as per the existing value of the car because if your car becomes older, the IDV will automatically reduce due to the depreciation factor. Hence, it is suggested to keep the IDV similar to the existing market value of your car.
Along with this, also remember that setting up a high IDV for an old car makes no sense as the value of the old cars depreciates fast which further reduces the IDV.
How to choose the right insured declared value for your car?
To set the correct IDV for your car, you should understand how depreciation works for your aging car. The IRDAI has a fixed depreciation schedule for cars as per their age. This schedule is used by the insurance companies to calculate the depreciation percentage that will be deducted from the market value to calculate the right amount of IDV
|Age of car||Depreciation Percentage|
|Less than 6 months||5%|
|More than 6 months but not exceeding 1 year||15%|
|More than 1 year but not exceeding 2 years||20%|
|More than 2 years but not exceeding 3 years||30%|
|More than 3 years but not exceeding 4 years||40%|
|More than 4 years but not exceeding 5 years||50%|
The insured declared value of your car is directly proportional to the premium you have to pay. Hence, it is advisable to not opt for a very high IDV or not a low IDV. It is best to compare car insurance online, check on the IDV offered by various insurance companies and also other policy benefits and then insure your vehicle with the best insurer online.