Despite easy-to-avail options and ample online material about insurance and related topics, many people still find the subject intimidating. Not many people are familiar with the jargon and terminologies associated with insurance. One such term is IDV or Insured Declared Value. The IDV plays a very important role in determining the premium amount for your car insurance policy.
What is Insured Declared Value?
Insured Declared Value, commonly known as IDV, is the highest amount you can receive from the insurance company in the event of complete damage or theft. For instance, in case your car gets stolen, the insurer will pay you the IDV amount set at the time of policy issuance. IDV is declared by the owner and impacts the premium amount directly.
IDV and How it Affects the Premium
IDV is the basic component of the comprehensive car insurance policy. You need not declare the IDV for third-party insurance as own damage is not covered by the policy.
Your car insurance premium varies with the IDV amount. A high IDV means a higher premium and vice versa. While you can save money on the premium by reducing IDV, remember that it will also reduce the sum insured. The claim amount, in this case, will also be lower and you have to compensate for the damages from your pocket.
How to Decide the IDV of Your Car?
When buying a car insurance policy, the age of your car plays a crucial role in determining the IDV. It keeps going down with increased depreciation. As a standard rule for calculation, a car depreciates by 5% in the first six months. For vehicles older than five years, the IDV is mutually decided between the insurer and the owner.
IDV calculation also varies with the current selling price of your car, the condition of interiors and exteriors, and the availability of parts and accessories. IDV is recalculated at the time of policy renewal every time. Since IDV affects both the premium and the claim amount, you must ensure you are completely satisfied with the calculation. Never hesitate to negotiate if you are not happy with the IDV amount. If you think your insurance provider is not providing the right IDV, you can consider changing your insurance provider.
Factors Affecting the IDV of Your Car
IDV of your car is calculated based on the following factors:
- Type of car
Whether you own a hatchback, MUV or SUV, each type of car has a different IDV. Generally, SUVs and sedans have a higher IDV value compared to hatchbacks.
- Make and model your car
Another important deciding factor in IDV is the make and model of your car. For higher-end cars, the IDV tends to be higher considering their high repair and maintenance costs.
- Depreciation of car
The car value decreases each year due to depreciation. The value of the car starts depreciating as soon as you take the car out of the showroom. Hence, the older the car, the lower will be the IDV.
- Other factors
Besides these, several other factors can impact the insured declared value of your vehicle. Some of those factors include the age of the car, place of registration, cost of accessories etc.
Why is it Important to Calculate IDV?
IDV impacts your car insurance premium directly. The higher the IDV, the higher will be the premium amount, and vice versa. Therefore, it is vital to calculate IDV correctly. While a lower IDV may seem to be a smart way to save money, remember, it will also reduce your sum insured. Therefore, when buying a car insurance policy, it is advisable to choose an IDV closest to the current market value of your car.
Tips for Calculating Correct IDV
- Do not overstate the value of your car
Do not overstate the current value of your car, as it will increase the premium unnecessarily. Your insurer will compensate based on the losses that were incurred and not the IDV.
- Refrain from understating the value
While understating the value will reduce the premium amount, it will also reduce the claim amount in case of theft or damages.
- Mention accurate IDV value
Mentioning inaccurate IDV value to increase or reduce the premium will only lead to an unnecessarily increased premium or limited coverage—either way your car insurance policy will fail to serve its purpose.
How to Decide if the IDV Should be High or Low?
Choosing the right IDV is crucial to getting the most out of your car insurance policy. While increasing or decreasing IDV may look lucrative from different perspectives, the right IDV will give you the best value for your car insurance policy. IDV should be actually neither high nor low; instead, it should be based on the correct current market value of your car. That should be the benchmark against setting the correct IDV.
If you are planning to buy a car insurance policy and the IDV amount is confusing you, you can check many online IDV calculator tools to get an idea. Your insurer can also help you with deciding the accurate insured declared value of your vehicle. Do not forget to compare the IDV offered by various insurers as well as the premium amount. Always choose an insurer that calculates the IDV only after keeping depreciation, model, age of vehicle and other crucial factors in mind. This will help you in paying the right amount of premium and easy claim settlement when the need arises.
Disclaimer: The above information is for illustrative purposes only. For more details, please refer to policy wordings and prospectus before concluding the sales.