When you start researching car insurance, one term that will constantly feature in almost all searches is ‘Insured Declared Value’ or IDV. Understanding the concept of IDV is important for various reasons. Today, we will talk about IDV and share five facts about it.

# What is IDV in a Car Insurance Policy?

Insured Declared Value or IDV is the current market value of your insured car. It is the maximum amount the insurer agrees to pay when you buy a car insurance policy. If your car is no longer capable of running on the roads (total loss) or the aggregate cost of retrieval and repair is more than 75% of IDV (constructive total loss), or your vehicle is stolen, then the IDV is the maximum amount the insurer will compensate you for.

# IDV Calculation

To calculate the IDV, the insurer takes the manufacturer’s listed selling price of the brand and model of the car and adjusts the standard rates of depreciation. The Indian Motor Tariff Act (IMT) stipulates the depreciation rates, as shown below:

 Vehicle Age Depreciation (%) IDV (percentage of the ex-showroom price) Up to 6 months old 5% 95% 6 months to 1 year 15% 85% 1-2 years 20% 80% 2-3 years 30% 70% 3-4 years 40% 60% 4-5 years 50% 50% More than 5 years Flexible

It is important to remember that the IDV does not include the cost of registration or insurance. Also, if you have fitted some accessories that were not factory-fitted, then the insurer will include the cost of these accessories (minus depreciation).

Further, when you approach a company for car insurance, it will consider the current selling price of the model of the car and NOT the price at which you had purchased for calculating the IDV. Therefore, if you had purchased a car for ₹15 lakhs 6 months ago, but its selling price has dropped to ₹13.5 lakhs now, the insurer will consider the current selling price of ₹13.5 lakhs for IDV calculation.

Here is the formula for IDV calculation:

IDV = [{Ex-showroom price} + {Sales Tax} + {(Accessories not included in the selling price) – (Depreciation of the accessories)}][{Depreciation} + {Car Registration costs} + {Insurance costs}]

# What if the car is more than 5 years old?

If you own a car that is more than 5 years old, then the calculation of IDV is different. This can be a car that is currently being manufactured but has evolved over time (better variants). Or, it can be an obsolete model that is no longer being manufactured. Under either circumstance, the insurer determines the IDV based on the assessment of the condition of the car and not its market value. In these cases, depreciation does not play a role. Instead, the IDV is determined based on a mutual understanding between the insured and the insurer. Some factors that the insurer considers are the model and manufacturer of the car, the availability of spare parts, etc.

# Importance of IDV in a Car Insurance Policy

If you are planning to purchase a comprehensive car insurance policy, then the IDV can help you understand the Own Damage Cover of your car and the premium thereof. In a comprehensive policy, the insurer offers protection against losses or damages due to natural calamities and man-made disasters. Therefore, the premium for the Own Damage Cover is calculated based on the IDV of the car. As the car ages, the rate of depreciation increases (refer to the table above). Therefore, the IDV reduces. A higher IDV would imply a higher premium and vice-versa.

# Why declaring the right IDV is important?

As a car owner, you might feel compelled to declare a lower IDV than the market value to reduce the premium amount. However, before doing so, it is important to remember that a lower IDV means that if your car is stolen or meets with an accident and has a total loss, then you will receive a lower claim amount. Hence, your losses will be higher.

On the other hand, if you are thinking about declaring a higher IDV to receive an increased claim amount, then you must remember that the insurer will look at the age of the car and depreciation rates before finalizing your claim amount. Hence, even if you have declared a higherIDV if your car has total damage or gets stolen, the claim amount will be proportionate to the age of your car regardless of the IDV declared and the high premium paid.

# Policy Renewal and IDV

When the policy is due for renewal, most car owners pay what the insurer asks them to. They usually don’t go back and check the IDV of their car and assess if the premium is justified. A car loses value over time. Hence, the premium amount should decrease too. If you are dissatisfied with the IDV, then talk to the insurer and ensure that the IDV and subsequent premium amount is calculated as per norms.

# Conclusion

Remember, a car insurance policy is a safety net protecting you against financial losses arising from damages or loss of your vehicle. The Insured Declared Value is an important figure that determines the maximum claim amount the insurer will honour and the amount of premium you will have to pay. As a car owner, you have the right to ensure that you get the right IDV for your car. We hope that you understood the concept, importance, and calculation of IDV. Be an informed insurance buyer and remember to read the fine print before signing the dotted line.