Fundamentals of IDV in Vehicle Insurance

Accidents are unfortunate events that cause damage not just to your vehicle, but also result in third-party liabilities. These third-party liabilities can either be relating to property damage, i.e., damage to the vehicle or an injury to such other person. But with a motor insurance policy, you need not worry about these damages. However, if you skip on an insurance policy, it may burn a hole in your wallet bearing the cost of repairs and attract legal complications. Before you buy any vehicle insurance policy, you must know its basics and how it operates. This article aims to shed light on such critical topic - Insured Declared Value or IDV.

What is the meaning IDV in vehicle insurance?

IDV or insured declared value is the maximum amount that an insurance company pays in the event of a damage to the vehicle and such damage is either beyond repair or requires to salvage the vehicle. Such a situation is called as total loss. Also, constructive total loss is another situation where the IDV is paid as compensation by the insurance company. Even in case of theft, the same is applicable. IDV is commonly mistaken to be the resale value of your vehicle. It, in fact, is the current valuation of the vehicle basis which a compensation is paid by the insurer. For instance, the IDV in your car insurance policy is set at ₹4.5 lakhs. Thus, the maximum compensation that your insurer shall pay in case the vehicle is damaged beyond repair is this amount of ₹4.5 lakhs. * Standard T&C Apply

Does IDV impact motor insurance premiums?

Since IDV is the maximum compensation paid by the insurer, it is directly proportional to the risk an insurance company has to undertake towards a policyholder’s vehicle. Hence, higher the IDV, higher will be the insurance premium for the vehicle. Comprehensive insurance plans allow the policyholder to modify such IDV within a specify range based on the age of the vehicle and accordingly it reflects in the policy premium. * Standard T&C Apply

How is IDV computed?

IDV is not based on any one factor but a combination of many factors acting at once. The model, make, location of registration, date of purchase, ex-showroom price are some of them to name a few. In addition, to these factors, depreciation on your motor vehicle as prescribed by the Indian Motor Tariff Act impacts the IDV calculation. It is expressed as follows in a mathematical equation: Insured declared value (IDV) = (Listed price by the manufacturer – Depreciation) + (Additional accessories purchased, if any – Depreciation on such accessories) The table mentioned below shows how the age impacts the IDV amount of the car / bike insurance policy.

Age of the vehicle	Depreciation for the purpose of IDV	Resulting Insured Declared Value
Less than and equal to 6 months	5%	95%
Greater than 6 months but not more than 1 year	15%	85%
Greater than 1 year but not more than 2 years	20%	80%
Greater than 2 years but not more than 3 years	30%	70%
Greater than 3 years but not more than 4 years	40%	60%
Greater than 4 years but not more than 5 years	50%	50%
Greater than 5 years	Mutually decided by insurance company and policyholder

 

Some pointers to keep in mind while setting the IDV

• As mentioned above, IDV can be modified within a range as defined by the insurance company. As a vehicle owner, it is imperative you set the right IDV.
• Moreover, make sure do not understate the IDV. While doing so lowers the premium amount, it will result in a financial loss at the time of insurance claim.
• Similarly, do not overstate the IDV as it will bump up the premium amount. A higher IDV need not fetch you a higher resale value.

* Standard T&C Apply With the basics about IDV in motor insurance policies cleared, you can get a robust insurance coverage for your vehicle based on the requirements. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.