Insured Declared Value or IDV –  A Complete Guide

Insured Declared Value (IDV) - BimaBandhu

As the Indian automobile industry continues to witness an upward trajectory, it becomes crucial for vehicle owners to be well-versed in the intricacies of insurance. While comprehensive insurance policies offer a wide array of benefits, the concept of Insured Declared Value (IDV) lies at the heart of safeguarding your prized possessions.

Imagine you’ve recently purchased a brand-new car that is the epitome of style and performance. It’s your cherished possession, and you take great pride in its gleaming exterior and cutting-edge features. But have you considered what would happen if your car were to be stolen or irreparably damaged in an unfortunate accident? This is where the concept of IDV comes into play.

The value of IDV lies in its ability to ensure that you receive adequate compensation for the loss or damage to your vehicle. It helps you evaluate the level of coverage your insurance policy provides and plays a crucial role in determining the premium amount you pay. By understanding the concept of IDV, you can make informed decisions while selecting insurance policies and take appropriate measures to protect your assets effectively.

Let’s dive deeper to understand IDV in the insurance policy and its meaning.

What is IDV Meaning?

IDV represents the maximum amount that an insurance company will compensate you for the loss or damage of your vehicle. In simple terms, it is the market value of your vehicle after accounting for depreciation. It acts as the foundation for calculating the premium you pay for your insurance policy. The IDV of your vehicle decreases over time due to factors such as wear and tear, depreciation, and market fluctuations.

In the Indian context, where the number of vehicles on the roads is increasing exponentially, understanding IDV becomes all the more important. Let’s take an example to illustrate its significance:

Suppose you purchased a car worth INR 10 lakhs two years ago. At the time of purchase, the IDV of your car might have been around INR 9 lakhs. Fast forward to the present, and your car’s IDV may have reduced to INR 6 lakhs due to depreciation. Now, if you were to make an insurance claim for a total loss, your insurance company would reimburse you based on the IDV, which in this case would be INR 6 lakhs.

Importance of Insured Declared Value

Understanding the concept of Insured Declared Value (IDV) holds significant importance for every vehicle owner. Here are some key reasons why knowing about IDV is essential:

  • Accurate coverage assessment

IDV helps you evaluate the level of coverage provided by your insurance policy. By knowing the IDV of your vehicle, you can assess whether it aligns with the value of your asset. If the IDV is too low, you may not receive adequate compensation in the event of a total loss. On the other hand, if the IDV is higher than necessary, you may be paying higher premiums than required.

  • Premium calculation

IDV helps determine the premium for your motor insurance. Insurance companies calculate premiums based on the IDV, among other factors such as the age, make, model, and cubic capacity of the vehicle. Knowing your IDV allows you to understand how the premium is derived, enabling you to make informed decisions while choosing insurance policies.

  • Claim settlement

In case of a loss or damage to your vehicle, the insurance company reimburses you based on the IDV. Being aware of your vehicle’s IDV helps you gauge the amount you can expect to receive in a claim settlement. It allows you to assess whether the compensation offered by the insurance company is fair and aligned with the IDV.

  • Depreciation factor

Insured Declared Value takes into account the depreciation of your vehicle over time. Understanding how depreciation affects your vehicle’s value helps you anticipate the reduction in IDV value in insurance and make necessary adjustments to your insurance coverage. It also aids in making informed decisions about policy renewal, considering the depreciation rate.

  • Financial protection

Knowing your vehicle’s IDV ensures that you have appropriate financial protection in place. Adequate IDV coverage helps mitigate the financial impact of unforeseen events such as accidents, theft, or natural disasters. It allows you to recover a substantial portion of the market value of your vehicle, thereby minimizing your out-of-pocket expenses.

  • Policy comparison

IDV serves as a crucial parameter for comparing different insurance policies. By understanding the IDV offered by different insurers, you can assess the level of coverage and premiums across various options. This knowledge enables you to make an informed decision while selecting an insurance policy that best suits your needs and budget.

Factors that Determine the IDV of Your Vehicle 

IDV in insurance policies is influenced by several factors that determine the market value of your vehicle at a given point in time. Understanding these factors helps you comprehend how IDV is calculated and how it impacts your insurance coverage. Here are the key factors that influence the IDV of your vehicle:

  • Age of the vehicle

As a vehicle ages, its market value depreciates. Insurance companies consider this depreciated value to calculate IDV. Generally, the IDV decreases with each passing year.

  • Make, model, and variant

The make, model, and variant of your vehicle play a role in determining its IDV. Vehicles with higher market values and those belonging to premium or luxury segments tend to have higher IDVs. Factors such as brand reputation, features, and technology also influence the IDV.

  • Cubic Capacity (CC) of the vehicle

The cubic capacity or engine displacement of your vehicle is taken into account while calculating the IDV. Vehicles with higher engine capacities usually have higher IDVs. This is because vehicles with more powerful engines often have higher market values.

  • Geographical location

The geographical location where your vehicle is registered and primarily used affects its IDV. Different regions may have varying market values for vehicles due to factors like demand, supply, and local conditions. Therefore, the IDV may vary based on the location.

  • Vehicle condition

The overall condition of your vehicle is also considered while determining its IDV. Factors such as wear and tear, maintenance, and any previous repairs or damages may affect the market value. Vehicles in better condition typically have higher IDVs.

  • Market fluctuations

Market conditions and fluctuations in the automotive industry can impact the vehicle IDV. Factors such as changes in demand, supply, inflation, and economic conditions can influence the market value, thereby affecting the IDV.

  • Modifications and accessories

Any modifications or additional accessories added to your vehicle after purchase can impact its IDV. Generally, modifications that enhance the performance or value of the vehicle may increase the insured declared value.

It’s important to note that each insurance company may have its methodology and parameters for calculating IDV. However, the factors mentioned above are commonly considered across the industry.

9 Things to Keep in Mind While Calculating the IDV of Your Vehicle

  • Consider depreciation

Factor in the depreciation rate based on the age of the vehicle while calculating the IDV. Older vehicles have a higher depreciation rate, resulting in a lower IDV.

  • Research market value

Research the current market value of your vehicle based on factors such as make, model, variant, and geographical location. This helps you estimate a realistic IDV.

  • Evaluate vehicle condition

Assess the condition of your vehicle, considering factors like wear/tear, maintenance, and any damages. A well-maintained vehicle may have a higher IDV compared to one in poor condition.

  •  Consult with the insurance provider

Seek guidance from your insurance provider to understand their methodology for calculating IDV. Different insurers may have different approaches, so it’s important to clarify any doubts or queries.

  • Compare multiple quotes

Obtain quotes from different insurance companies and compare the IDV offered. This allows you to choose an insurance policy that provides a suitable IDV for your vehicle.

  • Balance IDV and premium

Consider the balance between the IDV and the premium amount. While a higher IDV provides better coverage, it may result in a higher premium. Hence, it is important to find the right balance based on your needs and budget.

  • Consider renewal factors

Keep in mind that the IDV of your vehicle will decrease with each passing year due to depreciation. Consider this factor when renewing your insurance policy and adjust the IDV accordingly.

  • Seek professional valuation

If you have doubts about the accuracy of the IDV calculation, you can seek a professional valuation of your vehicle. This can provide a more precise estimate of its market value.

  • Review IDV regularly

Regularly review the IDV of your vehicle to ensure it remains aligned with its market value. Adjust the IDV value when renewing your policy to maintain adequate coverage.

Interesting Read: All About IDV Calculator

IRDA-Approved Standard Rate of Depreciation in IDV

The following tables cover the IRDA-approved rate of depreciation in IDV for different parts of a vehicle:

Vehicle Part Rate of Depreciation
For all rubber/nylon/plastic parts, tyres, tubes, batteries, and airbags 50%
For fiberglass components 30%
For wooden/leather components 30%
For metal parts Based on age of vehicle

The rate of depreciation for metal parts varies based on the age of the vehicle. Here’s the breakdown:

Vehicle Age Rate of Depreciation for Metal Parts
Not exceeding 6 months 5%
Exceeding 6 months but not exceeding 1 year 15%
Exceeding 1 year but not exceeding 2 years 20%
Exceeding 2 years but not exceeding 3 years 30%
Between 3 and 4 years 40%
Between 4 and 5 years 50%
Exceeding 5 years Based on mutual agreement between the insured and the insurer

It is important to note that the above tables represent the IRDA-Approved IDV value depreciation rate. However, it’s essential to refer to the specific terms and conditions of your insurance policy and check with your insurance provider for accurate and up-to-date information on depreciation rates for your vehicle.

How Does IDV Affect Motor Insurance Premiums?

Insured Declared Value directly affects the premium of your motor insurance policy, as defined below:

  • Higher IDV, Higher Premium

As a general rule, a higher IDV leads to a higher insurance premium. This is because a higher IDV indicates a higher value of the vehicle that needs to be covered by the insurance company. Therefore, if you want a higher coverage amount in case of a loss or damage, you will have to pay a higher premium.

  • Depreciation and IDV

IDV takes into account the depreciation of your vehicle. As your vehicle ages, its market value decreases, resulting in a lower IDV. Since the IDV is lower, the coverage provided by the insurance company is reduced, and consequently, the premium amount decreases as well.

  • Insurance Company’s Risk Assessment

Insurance companies calculate premiums based on various risk factors, including the IDV. They consider the market value of your vehicle, the potential cost of repairs or replacement, and the associated risks. Higher IDV indicates a higher risk exposure for the insurer, resulting in a higher premium to compensate for the potential claims.

  • IDV and Add-Ons

If you opt for add-on covers such as Zero Depreciation or Return to Invoice, the IDV of your vehicle becomes even more crucial. These add-ons provide enhanced coverage, ensuring that you receive a higher claim amount. However, they also contribute to an increase in the premium amount.

  • IDV and Policy Renewal

At the time of policy renewal, the IDV of a vehicle is re-evaluated based on its current market value and depreciation. If the IDV has been  reduced, the premium amount is adjusted accordingly. This is why it’s important to review the IDV during policy renewal to ensure it adequately covers the current value of your vehicle.

Why Should You Care About Your Vehicle’s IDV?

You should care about your vehicle’s Insured Declared Value for several important reasons:

  • By knowing your vehicle’s IDV, you can ensure that you have adequate coverage in case of an unfortunate event such as an accident, theft, etc. It also helps you assess whether the coverage provided by your policy aligns with the value of your asset.
  • In the event of a total loss or significant damage to your vehicle, the insurance company will reimburse you based on the IDV. Knowing your vehicle’s IDV allows you to evaluate whether the compensation offered by the insurance company is fair.
  • Insurance companies consider the IDV while calculating the premium, along with other factors. By understanding your vehicle’s IDV, you can evaluate how it influences the premium amount and make informed decisions while choosing insurance policies.
  • Understanding the impact of depreciation on the IDV helps you anticipate the reduction in value and make necessary adjustments to your insurance coverage. 
  • By comparing the IDV offered by various insurers, you can evaluate the level of coverage and premiums across different options.

Advantages and Disadvantages of Selecting High/Low IDV

Here’s a generic table covering the advantages and disadvantages of high and low Insured Declared Value (IDV) for a vehicle:

IDV Advantages Disadvantages
High 1. Higher claim settlement amount in case of total loss or significant damage. 1. Higher insurance premium as the coverage provided is greater.
2. Adequate coverage to replace or repair the vehicle in case of major accidents or theft. 2. Higher premium increases the cost of insurance.
3. Greater financial protection against the market value of the vehicle. 3. The vehicle’s depreciation may result in a lower claim settlement amount compared to the IDV.
4. Enhanced peace of mind as the IDV aligns closely with the vehicle’s current market value. 4. May not be cost-effective for older vehicles with lower market values.
Low 1. Lower insurance premium, reducing the cost of insurance. 1. Limited coverage amount in case of total loss or significant damage.
2. Cost-effective for older vehicles with lower market values. 2. The vehicle’s depreciation may result in inadequate claim settlement.
3. Suitable for vehicles with a low risk of accidents or theft. 3. May require out-of-pocket expenses for repairs or replacement beyond the IDV.
4. May be preferred for vehicles with lower maintenance costs. 4. Lower IDV may not align with the actual market value of the vehicle.

Why and How to Declare Correct IDV of Your Vehicle?

Declaring the correct IDV for your vehicle is crucial to ensure adequate insurance coverage and a fair claim settlement. Follow the steps given below to do the same:

  • Research and evaluate the current market value of your vehicle. 
  • Take into account the depreciation of your vehicle based on its age and condition. 
  • If you have added accessories or modifications to your vehicle, consider their impact on the IDV. 
  • Seek guidance from your insurance provider regarding the IDV calculation process. 
  • Make sure you provide accurate details related to your vehicle. incorrect or incomplete information may lead to an inaccurate IDV.

For a better understanding, consider this example –

Let’s say you own a four-year-old car. After assessing the market value, you find that similar vehicles are valued at around INR 500,000. Considering the standard depreciation rate of 30% for a four-year-old vehicle, you calculate the IDV as follows: 

Market Value = INR 500,000 

Depreciation (30%) = INR 150,000 

IDV = Market Value – Depreciation = INR 500,000 – INR 150,000 = INR 350,000

Here, declaring the IDV as INR 350,000 ensures that your insurance coverage aligns with the market value of your vehicle and provides appropriate financial protection.

How to Decide if IDV Should Be High or Low?

The very IDV meaning and importance can help you decide the right IDV to be selected. Here are some considerations to help you determine the appropriate IDV:

  • Age and condition of the vehicle

If your vehicle is relatively new and in excellent condition, opting for a higher IDV is advisable. This ensures that you have adequate coverage to replace or repair the vehicle in case of a total loss or significant damage. On the other hand, if your vehicle is older or has depreciated significantly, a lower IDV may be more appropriate to reflect its reduced market value.

  • Market value of the vehicle

Research the current market value of your vehicle by considering factors such as make, model, age, and condition. If the market value is high, it is recommended to select a higher IDV to ensure that the coverage amount aligns with the vehicle’s worth. Conversely, if the market value is lower, a lower IDV can help reduce insurance premiums.

  • Budget and affordability

Assess your budget to determine how much you can spend on insurance premium. Keep in mind that a higher IDV generally leads to a higher premium. Consider the trade-off between a higher premium for greater coverage and a lower premium for reduced coverage. Choose an IDV that strikes a balance between adequate coverage and affordability.

  • Risk exposure and usage patterns

Evaluate the risk exposure of your vehicle based on your usage patterns. If you frequently drive in high-risk areas or have a higher chance of accidents or theft, opting for a higher IDV can provide greater financial protection. Conversely, if you primarily drive in low-risk areas and have a lower likelihood of accidents or theft, a lower IDV may be sufficient.

  • Depreciation consideration

Take into account the depreciation of your vehicle. The IDV considers the depreciation based on the age of the vehicle. Older vehicles generally have lower IDVs due to higher depreciation rates. This is why you must assess the impact of depreciation and select a level that ensures adequate coverage based on the vehicle’s current value.

When Should You Buy Vehicle Insurance with a Higher IDV?

It makes sense to buy motor insurance with a higher IDV in the following cases:

  • When you own a new or expensive vehicle
  • If you live in an area where there is a high risk of accidents/theft
  • When you desire comprehensive coverage for your vehicle
  • If you have financed or leased your vehicle
  • When you have made significant customizations or modifications to your vehicle
  • For peace of mind and adequate coverage in case of significant damage or loss

When Should You Buy Vehicle Insurance with a Lower IDV?

You can choose to buy motor insurance with a lower IDV in the following cases:

  • When your vehicle is older and has significantly depreciated in value
  • If you primarily drive in low-risk areas with a lower likelihood of accidents or theft
  • When you have a limited budget and want to reduce insurance premiums
  • For vehicles with lower maintenance costs and a lower risk of damage
  • When you are willing to bear a higher portion of repair or replacement costs in case of an unfortunate event

What are IRDAI IDV Rules?

The Insurance Regulatory and Development Authority of India (IRDAI) has laid out certain rules and guidelines regarding the calculation and determination of Insured Declared Value in vehicle insurance. 

Here are the key IRDAI IDV rules:

  1. The IDV is calculated based on the ex-showroom price of the vehicle and adjusted for depreciation as per the schedule provided by the IRDAI.
  2. IRDAI has approved standard depreciation rates based on the age of the vehicle for the purpose of IDV calculation. These rates are used to determine the reduction in the ex-showroom price of the vehicle.
  3. The depreciation rates prescribed by the IRDAI increase with the age of the vehicle. The rates typically start at 5% for vehicles up to six months old and can go up to 50% for vehicles older than five years.
  4. IDV for add-ons and accessories is not included in the standard IDV calculation. The value of these additions is considered separately and is added to the IDV as per the insurer’s guidelines.
  5. IDV is revised annually at the time of policy renewal. The revision takes into account the depreciation of the vehicle based on its age and condition.

Discretion: While the IRDAI provides guidelines for IDV calculation, insurers can have the discretion to adopt their own methods within the approved framework. Therefore, there may be slight variations in IDV calculation across different insurance companies.

There are several common myths related to IDV in vehicle insurance. Let’s debunk these myths and provide you with the correct answers:

  • Higher IDV always means a better insurance policy

While a higher IDV can provide a higher claim settlement amount, it also results in higher insurance premiums. The choice between a higher or lower IDV depends on factors such as the vehicle’s value, age, risk exposure, and your budget. Hence, it’s important to strike a balance between adequate coverage and affordability.

  • Declaring a higher IDV guarantees a higher claim settlement

The claim settlement amount is not solely based on the declared IDV. Other factors, such as the nature and extent of damage, repair costs, and policy terms, also influence the claim settlement. The IDV serves as the maximum limit of compensation, but the final claim amount is determined based on the actual loss or damage incurred.

  • IDV remains constant throughout the policy term

The IDV is typically revised at the time of policy renewal. It decreases each year due to depreciation. The actual IDV at any given time depends on the age and condition of the vehicle. Therefore, it’s essential to review and update the IDV annually to reflect the current market value of the vehicle accurately.

  • IDV is determined solely by the insurer

While insurers follow the guidelines provided by regulatory authorities, they have some flexibility in determining the IDV calculation methodology. Different insurers may have slight variations in their approaches for the same. However, the final result should align with the market value of the vehicle and adhere to the regulatory guidelines.

  • The IDV should always be the highest possible value

It’s not necessary to declare the highest possible IDV for your vehicle. An excessively high IDV may result in higher premiums, even if the vehicle’s actual value doesn’t justify it.

FAQs

What is IDV full form?

IDV stands for Insured Declared Value. It is the approximate current market value of your vehicle as determined by the insurance company. It represents the maximum amount the insurer will compensate you in case of total loss or significant damage to your vehicle.

How is IDV calculated? 

IDV is calculated by adjusting the ex-showroom price of the vehicle based on its age and depreciation. Insurers follow a standard depreciation schedule approved by regulatory authorities to determine the IDV.

Why is IDV important? 

It is important as it helps in determining the premium amount for your vehicle insurance policy. It also serves as the maximum claim amount in case of a total loss. Additionally, it reflects the value of your vehicle and ensures adequate coverage for repair or replacement costs.

Can I choose any IDV for my vehicle? 

No, the IDV should reflect the current market value of your vehicle. It should not be overestimated or underestimated. 

Does IDV affect my insurance premium?

Yes, it directly impacts the insurance premium. Higher IDV generally leads to higher premiums, while lower IDV results in lower premiums. Thus, it’s crucial to strike a balance between the coverage you need and the premium you can afford.

Can I change the IDV during the policy term? 

No, the IDV is typically revised at the time of policy renewal. However, if there are significant changes to your vehicle’s condition or value during the policy term, you should inform your insurer, who may consider adjusting the IDV accordingly.

What happens if the claim amount exceeds the IDV? 

In case the claim amount exceeds the IDV, the insurer will typically settle the claim based on the IDV. You would need to bear any additional expenses beyond the IDV amount.

Is IDV the same for all insurers? 

While insurers follow the regulatory guidelines for IDV calculation, there may be slight variations in the calculation methodology and the final IDV amount. It’s advisable to compare quotes from different insurers to understand the IDV and coverage offered.

What is IDV in car insurance?

In car insurance, IDV represents the approximate current market value of your car – new or old, as determined by the insurance company. 

What is IDV in bike insurance?

It represents the maximum amount that the insurer will compensate you in the event of theft, total loss, or significant damage to your bike.

What is the IDV formula?

The Insured Declared Value (IDV) in vehicle insurance is calculated using the following simple formula:

IDV = (Ex-showroom price of the vehicle) – (Depreciation)

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