The Insured Declared Value is one of the most crucial considerations when purchasing insurance (IDV). IDV is a crucial element of insurance policies for motorcycles and cars in India. It stands for the highest sum that your insurance company will cover in the event that your car is stolen or completely lost. This article will explain What is IDV in insurance, how it is determined, and why it is crucial for you to know when purchasing insurance.
What is IDV in Insurance?
If your car is stolen or deemed a total loss, an insurance company will only reimburse you up to the Insured Declared Value (IDV). It is the original purchase price of your car, less any depreciation. IDV is used to calculate the amount of compensation you will receive in the event of a claim and is an important factor in determining the premium for your insurance policy.
IDV is calculated using the vehicle’s manufacturer-listed price after depreciation. The IDV is calculated by subtracting the depreciation rate from the manufacturer’s listed price and dividing it by the age of the vehicle. The IDV is not the same as the market value of the vehicle, as it does not take into account any modifications or upgrades that you may have made to the vehicle.
Why is IDV important?
IDV is significant because it establishes the maximum amount that you may be able to recover in the event that your car is stolen or totally destroyed. In the event of a claim, you will be compensated more generously the higher the IDV. However, because the insurance provider is taking on more risk, a higher IDV also entails a higher premium.
It’s crucial to comprehend the IDV of your car and how it’s calculated before purchasing insurance. Although a low IDV can lead to lower premiums, it also reduces the amount of money you will be reimbursed in the event of a claim. However, while a high IDV may mean higher premiums, it also means that you will get more coverage.
Calculating IDV:
The IDV of a vehicle is calculated using the following formula:
IDV = Manufacturer’s listed price – Depreciation
Depreciation is the reduction in the value of your vehicle over time due to wear and tear. The depreciation rate varies depending on the age of the vehicle, and it is applied to the manufacturer’s listed price to arrive at the IDV. The depreciation rate for cars and bikes is as follows:
Age of the vehicle Depreciation rate
- Less than 6 months 5%
- 6 months to 1 year 15%
- 1 year to 2 years 20%
- 2 years to 3 years 30%
- 3 years to 4 years 40%
- 4 years to 5 years 50%
After five years, the IDV is calculated on a mutual agreement basis between the insurer and the insured.
The Insured Declared Value (IDV)
Age of the Vehicle:
The age of the vehicle is one of the most significant factors affecting the IDV. As a vehicle ages, its value depreciates. Therefore, the older the vehicle, the lower its IDV. The depreciation rate varies for different age brackets, as mentioned in the previous section.
Make and Model of the Vehicle:
The make and model of the vehicle also play a vital role in determining the IDV. Luxury cars and high-end bikes have a higher IDV due to their higher cost. In contrast, more affordable models have a lower IDV.
Vehicle’s Condition:
The condition of the vehicle can impact the IDV. If the vehicle is in excellent condition, it may have a higher IDV than one that is poorly maintained.
Geographical Location:
The location where the vehicle is primarily used and parked also affects the IDV. Vehicles kept in areas with higher risks of theft or accidents, such as urban cities or busy highways, may have a lower IDV than those in safer locations.
Modifications or Upgrades:
Any modifications or upgrades made to the vehicle can also influence the IDV. Insurance companies may consider these upgrades when calculating the IDV, but this varies from insurer to insurer.
Fuel Type:
The type of fuel used by the vehicle can also impact the IDV. Vehicles that run on diesel generally have a higher IDV than those that run on petrol.
Insurance Claims History:
The insured’s claims history can also influence the IDV. If the insured has made multiple claims in the past, the insurance company may lower the IDV to mitigate the risk of future claims.
Insurance Company’s Policy:
The policy of the insurance company can also impact the IDV. Some insurers may have higher IDVs for certain models or types of vehicles, while others may have a different approach to calculating the IDV.
Conclusion
When purchasing auto or motorcycle insurance, the Insured Declared Value (IDV) is an important factor to take into account. It stands for the maximum sum that an insurance provider will provide in the event that the car is stolen or completely lost. The manufacturer’s suggested retail value (IDV) of the vehicle, after depreciation, is used to determine the IDV.
The IDV is calculated by subtracting the depreciation rate from the manufacturer’s listed price and dividing it by the age of the vehicle. Age, make, and model of the vehicle, its condition, location, modifications, fuel type, prior claims history, and the insurance company’s policy are some of the variables that affect the IDV. When purchasing insurance, having a thorough understanding of these factors can help you make wise decisions.
