Set the Car’s IDV Correctly While Renewing Your Policy. Here’s Why

Set the Car’s IDV Correctly While Renewing Your Policy. Here’s Why

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Whether it’s your marriage anniversary or credit card payment due date, forgetting specific dates can land you in trouble. For example, forgetting to renew your car insurance in time can land you in trouble with the authorities. According to reputable insurers such as TATA AIG General Insurance, you must be careful while searching and comparing offers from various insurers at the time of renewing your car’s insurance. You must also understand and choose the right IDV of your car before selecting an insurance renewal plan.

Set the Car's IDV Correctly While Renewing Your Policy. Here's Why 1

What Is IDV In Car Insurance?

Most car owners buy car insurance without knowing what is IDV in car insurance. However, they should because Insured Declared Value is one of the most critical aspects of car insurance renewal. Insured Declared Value or IDV is the market value of your car at a given point in time. The Insured Declared Value is based on the car’s age and the manufacturer’s current listed selling price of the car model. To calculate the value, insurers use a standard depreciation table for the vehicle. Thus, the IDV of your car is highest when it is brand new and lowers as time passes. Accordingly, the insurance premium of your vehicle varies while renewing insurance. In case of any claim, the IDV is the maximum amount that your insurer will pay you. To be technically correct, the Insured Declared Value impacts the Own Damage (OD) component of the insurance premium, while the Third-Party part remains unaffected.

How Does the IDV Vary with Depreciation?

The Motor Vehicles Act and the Insurance Regulatory and Development Authority of India (IRDAI) has specified the basic depreciation rules, helping determine the IDV. Here is how the depreciation percentage varies with your vehicle’s age:

Age of Vehicle% Depreciation for adjusting IDV
Less than six months5%
Between six months and one year15%
Between 1 and 2 years20%
Between 2 and 3 years30%
Between 3 and 4 years40%
Between 4 and 5 years50%

Thus, the calculation of IDV in car insurance is done by subtracting the depreciation value from both manufacturer’s listed selling price of the vehicle and the cost of accessories that are not included in the declared selling price. After that, the sum of the two remaining values denotes the Insured Declared Value of the vehicle.

Why Do You Need to Set the Right IDV for Your Car?

While renewing your car insurance, you will receive different quotes from different insurers, but you must be careful to check the IDV against which the quotes are offered. As an owner, you are eligible to adjust your car’s IDV within a specific range. Remember, the higher the IDV, the higher is the premium that you have to pay. For example, let us assume that the IDV of your 3-year old car is 5 lakhs, and the manufacturer allows you to vary the IDV by 5%. In other words, you can set the value at either 5.25 lakhs or 4.75 lakhs. If you decide to increase the IDV to 5.25 lakhs, it does not mean that the insurance company will reimburse the increased amount. The chances are that you may not receive more than 5 lakhs for your claim. Therefore, it is not advisable to go for the higher IDV, hoping that the claim amount will also increase. Similarly, some car owners believe that lowering the IDV is better because the premium amount decreases accordingly. So, if you were to say, reduce your car’s value to 4.75 lakhs, you could save some money on the renewal premium. But in case of damage, the insurer will only pay you the new declared value – not a good deal at all.

What Should You Do?

After purchase, the value of your car would depreciate each subsequent year. Therefore, when you renew your car insurance, do not select a plan that offers a low premium. Instead, understand the IDV that is offered by the insurer for that premium. It is also possible that the insurers provide certain discounts for car insurance; however, this will only happen because of the following reasons:

  • Your car’s IDV has been reduced, or
  • voluntary deductible has been added, or
  • Other standard policy benefits have been reduced.

Overall, setting a below-par IDV for your car may cost you at the time of claim. Thus, you need to choose an Insured Declared Value that is the closest to your car’s actual market value. After that, you should renew car insurance based on the insurer that offers you the most optimum IDV at the most cost-effective premium. Doing so would help ensure that your insurer would reimburse you the appropriate amount if your car gets stolen or damaged.

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