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All about IDV in Car Insurance
What is the Full Form of IDV?
We know there are terms in insurance that are difficult to understand but are extremely important to be acquainted with, one such term is IDV. IDV refers to ‘Insured Declared Value’,
What is IDV in Car Insurance?
An IDV (Insured Declared Value) in car insurance is nothing complicated but, refers to the market value of your car. In other words, it is the amount your car could receive in today’s market.
This IDV in car insurance helps your insurer, a.k.a us determine your claim amounts correctly during claim payments. Additionally, it also helps us determine the right premium price for your car insurance.
Why is IDV Important?
Insured Declared Value is the soul of your beloved car insurance. Your IDV decides the premium of your vehicle. There is a direct link between IDV and your premium.
If the IDV is high, the premium payable is higher. However, it is not advised that you understate the IDV of your vehicle or in case of damage, it will be your loss.
How to Calculate IDV for Car Insurance?
IDV is calculated based on the current selling price of your car, after deducting the necessary depreciation amount. To calculate the actual Insured Declared Value, refer to the below-given formula.
Insured Declared Value (IDV)= (Company’s listed price – the depreciation value) + (Cost of car accessories - the depreciation value of these parts)
Remember that this formula is used for a new car with extra accessories that the policyholder might have added after purchasing the car.
So, if your car is not equipped with any such accessories, use the following formula to calculate its Insured Declared Value easily -
IDV = Manufacturer’s registered price – the depreciation value
IDV Calculator- Calculate the IDV for your Car
An IDV calculator is one of the most important insurance calculator tools, as it helps one determine not only the market value of their car but also helps in determining the right amount of premium you should be paying for your car insurance.
This further helps us (the insurer) determine the right amount payable during claims and God forbid, in cases where your car is stolen or damaged beyond repair.
Know more about Depreciation rates for your Car
| Age of the Car | Depreciation % |
|---|---|
| 6 months and below | 5% |
| 6 months to 1 year | 15% |
| 1 year to 2 years | 20% |
| 2 years to 3 years | 30% |
| 3 years to 4 years | 40% |
| 4 years to 5 years | 50% |
Let us understand how the depreciation rates are used to calculate your car’s IDV with the help of the following example.
For example: If your car is less than 6 months old and its current ex-showroom price is Rs. 100, the depreciation rate is only 5%.
Which means that after its purchase, your IDV drops to Rs. 95 – dropping to Rs. 85 for vehicle age exceeding 6 months but not exceeding 1 year, Rs. 80 for vehicle age exceeding 1 year but not exceeding 2 years, Rs. 70 for vehicle age exceeding 2 years but not exceeding 3 years, and so on – until it is Rs. 50 after 50% depreciation in its 5th year.
If your car is more than 5 years old, the IDV depends on the condition of the car – the manufacturer, model, and availability of its spare parts.
At the time of resale, your IDV is indicative of the market value for your car. However, if you have maintained your car really well and is shining as good as new, you can always aim at a price more than what your IDV might offer you. At the end of the day, it all boils down to how much love you have showered on your car.
What Factors Help Determine Your Car's IDV?
Age of the Car: Since the IDV represents the market value of your car, the age of your car is extremely important to help determine the right IDV. The older your car is, the lesser will be its IDV and vice versa.
Manufacturer Make and Model of the Vehicle: The make and model of your car is directly influenced to your IDV. For example; a car like a Lamborghini Veneno will have a higher IDV than that of an Aston Martin One due to its difference in their make and model.
City Registration Details: Your car registration details are available on your registration certificate. Also, the city where your car is registered has an impact on its insured declared value. The IDV of your car in a metro city may be less than its IDV in a tier-II city.
Standard Depreciation (As per Indian Motor Tariff): Your car’s value depreciates from the moment you drive it out of the showroom– and the percentage of its depreciation increases with each year. This too ultimately affects your IDV. Here’s a table to help you understand the respective depreciation rates with context to your car’s age.
How does IDV Affect Your Car Insurance Premium?
The Insured Declared Value and your car insurance premium go hand in hand. This means, the higher your IDV is, the higher your car insurance premium – and as your vehicle ages and IDV depreciates, your premium also decreases.
Also, when you decide to sell your car, a higher IDV means you’ll get a higher price for it. Price may also be affected by other factors like usage, past car insurance claims experience etc.
So, when you’re choosing the right car insurance policy for your car, remember to make note of the IDV being offered, and not just the premium.
A company offering a low premium may be tempting, but this could be because the IDV on offer is low. In case of a total loss of your car, a higher IDV leads to higher compensations.
Advantages of Decreasing/Increasing IDV?
- High IDV: High IDV means high premium but you get a higher compensation at the time of loss or theft of your insured car.
- Low IDV: Low IDV means low premium but this little saving on the premium can be a big loss for you at the time of loss or theft of your insured car.
Significance of IDV in Car Insurance
- Your IDV is the market value of your car, and hence directly affects your premium for your car insurance.
- Your car’s IDV also determines the level of its risk. The higher your car’s IDV, the higher is its risk and consequently, this would demand for a higher premium.
- During claims, compensations are paid out based on the value of your car. After all, repair or replacement expenses would be based on the same. Therefore, this is one of the most crucial factors in your car insurance so that in times of need, you receive the right amount of compensation for loss and claim made.
- If your car is stolen or damaged beyond repair, the compensation you receive for your loss will exactly be the amount of what your IDV is. Therefore, always make sure your IDV is right, as per your car’s true value.
How to Choose the Right IDV for your Vehicle?
Choosing a policy with just the right IDV is crucial to get the most coverage, but at the same time, it may seem a daunting task. Read below to clarify if a car insurance policy with a higher IDV is better for you or one with a lower IDV.
Car Policy with Higher IDV
You may opt for a car insurance policy with a higher IDV if:
You own a new luxury car - It's advisable to safeguard your luxury car and its expensive, not readily available spare parts by opting for a higher IDV as then your insurance cover aligns with the expenses involved in repairing/replacing your expensive car parts whenever required.
Also, getting a policy with a higher IDV will reduce the impact of depreciation on the claim amount and will ensure that you receive compensation closer to the actual market value of the car in case of theft or total loss.
Car Policy with Lower IDV
You may opt for a car insurance policy with a lower IDV if:
You own 5-year-old standard car - If you have been driving the same car for years with parts that are not expensive and readily available in the market, it's best that you choose an insurance policy with a lower IDV. Since the value of your older standard car has already depreciated and requires less expensive repairs/replacements, opting for a lower IDV ensures that you are not paying the premium that exceeds your car’s actual value.
Also, if you plan to sell your car in the future, a lower IDV policy is advantageous as it will help you save costs on premiums while maintaining the necessary coverage.
Explain it like I'm five
We're making insurance so simple, now even 5-year-olds can understand it.
You own an expensive watch. One day, you decide to find out how much you would get if you sold it. You take it to a watchmaker. The watchmaker looks at your watch, and explains that it is made of glass, metal, leather and screws. So, he first adds up the cost of those materials. He then asks you how old the watch is, and you tell him that it is 5 years old. He writes that down as well. Based on all of this, he tells you that if you sold your watch, you would get Rs. 500. In this case, Rs. 500 is your IDV!
FAQs about IDV in Car Insurance
What is the IDV of a new Car?
The IDV of your new car will be the invoice value of the same, along with its depreciation if you’ve already started using the car.
What is the IDV of a car outside the showroom?
If you’ve already started using your car, I.e driven it out of the showroom then the IDV of your car will be the invoice value of your car, minus the minimum depreciation applicable on it.
What is the IDV for older cars > 5 years?
As per the Indian Motor Tariff’s standard depreciation rates, a car that is more than 5 years will at least have a depreciation of 50% applicable to determine its right IDV.
Is it a good idea to go for high IDV?
Honestly, this depends on the kind of car you have and the condition at which it is in. A high IDV is suitable for cars that are not too old, and in a brilliant condition. Remember, higher the IDV, higher will be the premium you pay annually.
What happens if one declares a low IDV?
Sometimes, people are lured into low premiums, by declaring a low IDV. However, one must remember that while your premium may be cheaper, your compensations during claims too would be less and this may not be enough for your car. So, our advice is not to go for a higher or lower IDV but the right IDV.