What is Insured Declared Value in Car Insurance & How to Calculate it

Buying insurance is more than just a routine purchase—it’s a long-term investment that shields you from the financial fallout of unexpected events like accidents, theft, natural disasters, or even traffic rule violations.

There are multiple factors to consider when purchasing or renewing car insurance online. One crucial element that significantly impacts your premium and your claim settlement is your vehicle’s IDV (Insured Declared Value). However, many car owners aren’t fully aware of what IDV means and how it affects their insurance. Let’s break down the concept of IDV in car insurance and explore its importance in simple terms.

What is Car Insurance?

Car insurance is a protective cover that provides financial security against damages or losses to your car due to accidents, theft, natural calamities, and more. When choosing a car insurance policy, either for the first time or during renewals, it’s essential to consider various factors to ensure adequate coverage. One of these critical factors is the Insured Declared Value (IDV).

What is IDV in Car Insurance?

The IDV, or Insured Declared Value, represents your car’s current market value. In simple terms, it is the maximum amount your insurance company will pay if your car is stolen or suffers total damage. The IDV is not a fixed amount but is usually determined by the insurer based on the car’s market value at the time of policy issuance. This value plays a pivotal role in determining the premium you’ll pay for your car insurance policy.

How is IDV Calculated?

Calculating the IDV of a car involves a straightforward formula:

IDV = (Manufacturer’s Listed Selling Price – Depreciation) + (Accessories Not Included in Listed Selling Price – Depreciation) Excluding Registration and Insurance Costs.

When calculating the IDV, the costs associated with registration and insurance are excluded. Additionally, any accessories that were added to the car after purchase and are not part of the standard fitting are also excluded from the IDV calculation. This is important to remember so that you are not surprised by the payout in the event of a claim.

For a new car, the IDV is typically around 95% of the ex-showroom price provided by the manufacturer. This is because a new car generally depreciates by 5% right after purchase. As the car ages, its IDV decreases due to factors like wear and tear, reducing the market value. Hence, the IDV of a four-year-old car will be significantly lower than that of a brand-new car.

Current Depreciation Rates

The depreciation rates, which are used to calculate the IDV of a car, are determined by the India Motor Tariff. Below is a schedule showing how depreciation is applied based on the car’s age:

Why is IDV Important in Car Insurance?

The IDV is a crucial element in car insurance for several reasons:

• Maximum Compensation: The maximum amount you can claim for your insured car depends on its IDV. If your car is stolen or suffers irreparable damage, the insurance provider will compensate you based on the IDV.
• Risk Assessment: The IDV determines the risk level of your car. A higher IDV indicates a higher risk, leading to a higher insurance premium.
• Claim Settlement: When a claim is made, the expenses for repairing or replacing car parts are calculated based on the IDV.
• Total Loss Scenarios: In cases where your car is beyond repair or stolen, the insurer will pay you an amount equal to the car’s IDV.

While it may be tempting to declare a higher IDV to increase the potential payout, this will also raise your premium. Conversely, declaring a lower IDV to reduce your premium can result in inadequate coverage. Therefore, it’s important to declare an appropriate IDV that accurately reflects your car’s market value.

Components Influencing Car Insurance IDV

Several factors contribute to the calculation of a car’s IDV:

• Car Registration Details: The state and location where the car is registered.
• Car’s Showroom Price: The original price of the car at the time of purchase.
• Registration Date and Type: The year and type of registration (private or commercial).
• Make and Model: The specific make and model of the car.
• Engine Capacity: The cubic capacity (CC)

Points to Remember When Calculating Your Car’s IDV

• True Valuation: Accurately determining your car’s IDV will result in a fair premium and ensure rightful claim settlements.
• Insurance Value Check: Before accepting the insurer’s IDV, discuss it with the car manufacturer to ensure accuracy.
• Premium Calculation: Ensure that the car insurance premium is based on the correct IDV.

Final Takeaway

Understanding the Insured Declared Value (IDV) is essential for every car owner. It directly affects the premium you pay and the compensation you receive in case of a claim. Accurately calculating and declaring your car’s IDV can ensure adequate coverage and avoid any financial surprises.

Whether buying car insurance online or renewing your policy, keep the IDV in mind to make a smart and informed decision. With tools like the IDV value calculator, it’s easier than ever to determine the right IDV for your car. Doing this ensures you get the best possible coverage without overpaying premiums.