Have you ever wondered why the value of a used car is lower than the value of a brand–new car, even if both the vehicles are in perfect condition? Cars are a commodity; hence, like every other item, their value depreciates with time and use. As a result, if you plan to buy a second–hand car, it is vital to understand how used cars are valuated. Furthermore, since you are legally required to get your vehicle insured, it is also essential to know what will be the used car valuation effect on insurance premiums. If you wish to get a clearer idea about the same, read on!

How are used cars valuated?

The used car valuation depends on several factors, such as the car’s age, its accident history, customisations made, and the make and model of the vehicle. Here is how the value of the used car decreases with age:

Vehicle Age	Rate of depreciation
Less than 6 months	5%
Between 6 months and 1 year	15%	Between 1 year and 2 years	20%	Between 2 years and 3 years	30%	Between 3 years and 4 years	40%	More than 4 years	50%

How does the used car valuation impact your insurance premiums?

After subtracting the depreciation costs, your second–hand car’s market value is the IDV of your vehicle. Insured Declared Value (IDV) is the maximum amount of money that the insurer agrees to cover you for after an accident. A higher IDV amount allows you to enjoy more comprehensive coverage when you need to repair the damages caused to your car after an accident. Alternatively, if the used car valuation of your vehicle is relatively low, the compensation offered by the insurer would be minor as well.

The IDV specified in your motor insurance policy is directly proportional to the premiums you need to pay for your comprehensive car insurance policy. Note that since third–party insurance does not have an own damage cover, their premiums are unaffected by the depreciation of your vehicle’s market price.

Since the insurance coverage depends on the market value of your car, it is vital to estimate the cost of your second–hand vehicle with as much accuracy as possible. To help you with the same, many prominent insurers offer a used–car valuation calculator on their websites. These calculators are free to use and can help you accurately estimate the IDV of your used car.

Few more things to consider:

• Second–hand cars have typically endured a good amount of wear and tear. Hence, once you evaluate your used car, you may find the need to buy a few extra riders in your insurance policy. While it would help you enjoy extensive insurance coverage, it would also increase your premiums.

• If you purchase a second–hand car that is more than five years old, the IDV is mutually decided between you and the insurer. Hence, after assessing the already existing faults in the vehicle, the insurance company will inform you about the cost of procuring insurance for your newly bought second-hand car.

Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.