Insured Declared Value in Car Insurance
Car Insurance

Insured Declared Value in Car Insurance

Insured Declared Value in Car Insurance

One factor that deters a prospective insurance buyer is the complex–sounding insurance terms. But it is not rocket science and anybody can understand the terminology.

Let us take the case of insured Insured Declared Value (IDV) in car insurance, for example. It refers to the maximum claim your insurance company will pay for your vehicle in certain situations. The IDV meaning in insurance or a vehicle IDV comes into play when there is total loss or theft of the insured vehicle. Here, “total loss” would essentially mean that the cost of repairs on the vehicle exceeds 75% of its Insured Declared Value.

To understand what is IDV in car insurance, it is important to know that it is a varying amount which changes at different stages of the vehicle‘s life.

Is IDV mandatorily declared in all car insurance policies?

There are two types of car insurance policies in the market. The concept of IDV only applies to one of them.

  • The first kind of car insurance policy. is a Third-party liability policy which is mandated by law. Under this type of car insurance, compensation by the insurance company is only provided against legal liabilities arising out of damages, injury or death caused to a third–party/property caused by the insured vehicle. There are no provisions under this policy to be covered for damages caused to your own vehicle. Hence, the concept of Insured Declared Value doesn’t come through in Third-Party Liability policy.

  • Whereas in a comprehensive policy, an insurance company will compensate against third-party liabilities as well as damages caused to the vehicle. Herein, the concept of Insured Declared Policy is valid and also detrimental toward calculation of premiums.

Calculation of IDV

The insured declared value of a vehicle is equal to its market value, minus depreciation on its parts. The cost of registration of the vehicle and the insurance premiums attached to the policy are excluded from the IDV calculation. Additionally, if the accessories in the vehicle are not fitted by the factory, then the IDV of these parts are calculated separately as well.

How much can IDV vary?

IDV when it is a new car: What is IDV in insurance is ideally determined on the basis of the manufacturer‘s listed selling price of the brand and model, minus depreciation attached to it. Typically, depreciation of a new car is assumed to be 5%. So, in turn, the maximum IDV value of a new car would be 95% of its listed price.

IDV when a car insurance policy gets renewed: A car will always remain to be a depreciating asset, which means that the minute it is out of the showroom, its inherent value will start coming down. However, at the time of renewal of the car insurance policy, there exists an opportunity to tweak the IDV, subject to certain terms and conditions. Typically, a window of plus or minus 15% on the earlier agreed upon IDV is permissible.

Factors affecting insured declared value

  • Specifics of the car: This primarily refers to the make and model of the car. Quite evidently, the higher end model a car is, its insured declared value would also be higher.

  • Road Age of the Car: The insured declared value and age of the car have an inverse relationship. The older a car is, the more prone it is to damage. Hence, the IDV would be lower.

  • City of registration of the car : The city of a car‘s registration plays a detrimental role in its IDV calculation. A metropolitan city like Delhi, Mumbai will have higher IDVs for cars registered within their jurisdiction, owing to more risks on road as compared to a tier–2 city like Indore.

  • Standard depreciation: Probably the most important factor in deciding IDV of a car is by way of depreciation. As mentioned above, the IDV can be changed during policy renewals. This is decided per a generic depreciation schedule applicable for cars which claims certain depreciation percentages basis the road age of the vehicle.

Road Age of the VehicleDepreciation Percentage for adjusting IDV
Not exceeding 6 months5%
Exceeding 6 months but less than 1 year15%
Exceeding 1 year but less than 2 years20%
Exceeding 2 year but less than 3 years30%
Exceeding 3 year but less than 4 years40%
Exceeding 4 year but less than 5 years50%

If the vehicle is five years or older, then a revision in its insured declared value is mutually decided between the insurance company and policyholder. Rather than factoring in just depreciation, assessment of the vehicle is done through the help of car dealers, surveyor‘s etc.

Significance of IDV -

Vehicle IDV implies the amount you will receive in case you vehicle is stolen, or suffers an irreparable loss. It is natural, thus, that the premium of such a policy would be directly impacted by the IDV chosen. While it could be tempting to settle for a lower IDV just to gain by way of lower premium cost, in the long run, this could be counter-productive. A lower IDV would result in lower compensation as compared to the vehicle’s actual market value. Hence, it is important that the IDV chosen is genuine and not just a means to pay lower premium.

Can declaring a higher IDV be troublesome?

YES, and yes! It is strongly advised against declaring a higher IDV of your insured vehicle, even if you can afford the higher premiums that come with it. This is usually done in the hope of getting a higher claim amount, but is a pointless exercise. At the time of making a claim, the insurance company would consider and compare the road age of the vehicle and attached depreciation. If the IDV would appear to be overstated, only a portion of it would be compensated for and one would have suffered the loss of paying higher premiums.

IDV in two-wheeler Insurance

In two-wheeler or bike insurance policies, the concept of Insured Declared Value remains the same. It is the maximum sum that an insurance company will provide for in case of theft or total loss of the bike. There are several online IDV calculators online which help in determining the current market value of the two-wheeler, so that a policy with reasonable premiums can be purchased.

At the time of renewing the car insurance policy, you would find different insurance companies putting different values to the IDV of the same car, entailing varying premiums. The essence is to select a policy whose IDV is closest to the actual cost of your car, after factoring in depreciation. In the long run, this would serve your purpose of being reasonably compensated in case of car theft or damages.

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.

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