How To Derive IDV?

What is IDV in Car Insurance?

In car insurance, IDV means “Insured Declared Value”. It's the highest amount for which the insurance company will pay you in case of theft or total loss of your car. In simple terms, IDV is your vehicle’s current market value. When you get car insurance the IDV is calculated as the manufacturer’s displayed selling price minus depreciation.

Importance of IDV in Policy

• Direct Impact on Premiums: The IDV of your car directly impacts the premiums you pay. The premium increases with the increase in the IDV and decreases with the decrease in IDV.
• Protection of Financial Interests: With an increased IDV, you get better protection against losses from a major accident or theft. It makes sure that if such a situation arises, you get the optimum price for your vehicle.
• Influence on Claim Amount: In case your car is totally damaged or stolen, the amount of insurance money received by you is evaluated with the help of an IDV. Decreased IDV results in a claim amount that might not be good enough to replace your vehicle; hence, you would have to bear the rest of the amount.
• The right way to balance cost and coverage: The right IDV ensures that your premiums are affordable while you have sufficient coverage in case of loss or damage. Adequate value assessment is very important in order to avoid the risks of underinsurance or overpayment for insurance coverage.

How to Calculate IDV for Car Insurance?

The amount that the car manufacturer decides as the selling price for a vehicle at the time of selling forms the basis for calculating the IDV. In the case of vehicle parts, depreciation is deducted from the selling price while calculating the IDV.

The formula for calculating the same is:

Insured Declared Value of Car = Manufacturer's Listed Price - Depreciation Value

This formula easily calculates the IDV if no additional accessories are added after purchasing the vehicle. However, if accessories were added post-purchase of the vehicle, then you can use the following formula to calculate the IDV of a car:

Insured Declared Value of Car = (Manufacturer's Listed Price - Depreciation Value) + (Cost of Vehicle Accessories - Depreciation Value of Vehicle Accessories)

Depreciation Schedule to Calculate the IDV

The depreciation that is applied to the vehicle for the purpose of IDV calculation is chargeable as per the following standard schedule fixed as per IRDAI below:

In the case of cars that are more than 5 years old, the IDV is agreed upon by the insurer and the owner of the car. For older vehicles, the IDV is not calculated on the basis of the depreciation value of the car but based on the condition of the car and a survey report from the surveyor.

Components of Car Insurance IDV

Following are the different components based on which a car's IDV is calculated:

• The registration details of the car.
• The location where the vehicle was registered.
• The showroom price of the vehicle.
• Date and type of the vehicle's registration.
• Make and model of the vehicle.
• Cubic capacity of the vehicle's engine.

What Effects an IDV on Car Insurance

There are various factors that may influence the IDV of your vehicle. Some of them are:

1. Age of the car

The older a car is, the lesser its worth, and hence, with time, the IDV keeps decreasing, so an older car will always have a lesser IDV in comparison to a brand-new car.

2. Type of car

There are different types of cars available, like sedans, hatchbacks, SUVs, etc., which have different features and price ranges that consequently affect their IDVs.

3. City of Registration

Vehicles registered in busy cities like Delhi or Mumbai are exposed to more risks due to their high running on the road. This impacts their IDV compared to those moving in small towns.

4. IRDAI Depreciation Standards

As a car gets older, its value decreases by following a depreciation schedule that is specified by the Insurance Regulatory and Development Authority of India.

5. Additional accessories

All other accessories you get in your car after purchasing, depreciate with time. Such depreciation is considered while computing the IDV of the car.

Conclusion

IDV is an important part of motor insurance, ensuring adequate coverage in the case of total loss or theft of the vehicle. Knowing the factors that affect it and how to calculate them will help in making wise decisions while purchasing a car insurance policy.

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