IDV stands for insured declared value, and it is one of the major things a buyer will encounter when purchasing car insurance. While it might sound like another piece of jargon, understanding IDV is crucial for ensuring that your vehicle is adequately insured and that you receive a fair payout in the event of theft or total loss.
Let's explore and define IDV, how it determines your insurance premium, and why it is an important factor in your car insurance policy.
What is the Insured Declared Value (IDV)?
In simple terms, the Insured Declared Value (IDV) is the current market value of your vehicle. It means the highest sum your insurance company will compensate your car if stolen or written off (totally dismantled). One can consider it like the ‘sum insured’ in the context of a car insurance policy- it represents the maximum amount in a worst-case scenario.
IDV is, therefore, the manufacturer’s listed price of your car minus depreciation. This value is relative to the age of your vehicle. For instance, the IDV of the latest model car will be higher than that of the same model car five years old due to the depreciation of value.
How is IDV Calculated?
The calculation of IDV is based on the ex-showroom price of the vehicle (the price at which the vehicle is sold without on-road costs) and its age. As your car gets older, its value depreciates, and the IDV decreases accordingly.
Here’s a general context at how depreciation is applied:
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Age of the Vehicle
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Depreciation Percentage
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Less than 6 months
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5%
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6 months to 1 year
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15%
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1 to 2 years
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20%
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2 to 3 years
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30%
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3 to 4 years
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40%
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4 to 5 years
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50%
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Once a car is older than five years or if it’s an obsolete model, the IDV is typically determined by mutual agreement between the insurer and the policyholder based on factors like the vehicle’s condition, service history, and market trends.
Why is IDV Important in Car Insurance?
The Insured Declared Value plays a critical role in determining both the premium you pay and the compensation you receive in the event of a claim.
1. IDV Affects Your Insurance Premium
The IDV of your car determines how much you will be charged for comprehensive insurance premiums. This implies that a higher IDV will lead to the payment of a higher premium since the amount that the insurer is willing to pay in the event of total loss or theft of the car is also high.
On the other hand, if you set a low IDV, then the car insurance premium will be low, but in the event of an accident, you will receive a small claim.
2. Compensation in Case of Total Loss and/or Theft
If your car is stolen or a total loss where the cost of repair is more than 75% of the insured declared value, then IDV is paid by the insurance company after considering the deductibles and depreciated parts. Therefore, setting a right IDV ensures you get a fair compensation amount.
How Does IDV Impact Your Premium?
The declared amount influences the insurance charges since IDV is closely linked to your car insurance premium. Insurers offer a balance between a higher premium and a higher payout (or a lower premium and a lower payout). Thus, selecting the right IDV while purchasing or renewing the policy is necessary.
There are two key points to consider:
Although it raises your premium, a higher IDV will also entitle you to a greater sum in case of a total loss claim. This applies to newer models that will help guard a larger value of the car.
If one declares a lower IDV, the insurance premium will be lower, and so will the claim amount. This might look attractive to some in the sense that they will agree to pay lesser premiums, but it is dangerous. In case your car gets stolen or damaged in an accident, the amount will not suffice to replace or repair the car.
How to Choose the Right IDV for Your Car?
When choosing the IDV, it's important to strike a balance between premium affordability and adequate coverage. Here are some tips for selecting the appropriate IDV:
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Don’t Underestimate the IDV
Choosing a lower IDV will mean lower premiums, but this can prove disadvantageous to you in the future. In the event of a claim, the compensation you receive may not be enough to replace your car fully, especially if it got stolen or considered a total loss.
While you might be tempted to declare a higher IDV, keep in mind that this will result in higher premiums without offering additional benefits. In case of a claim, the amount that will be given to you will be fair market value, not the inflated IDV.
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Consider the Age of the Vehicle
If your car is older, then you will find that it has depreciated in value greatly. In such cases, setting an extremely high IDV doesn’t make sense, as the insurance company will only pay a fair market value at the time of the claim.
Many insurance companies offer IDV calculator to help you find the right balance between coverage and cost. It also has the flexibility of negotiating with your insurer, especially for five-year-old cars.
What Happens If the IDV is Incorrect?
If the IDV is either too high or too low, it can lead to complications during the claim process. Here’s what can go wrong:
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Under-Insuring the Vehicle
If you decide on a lower-than-actual IDV just to pay smaller premiums, the insurer will only compensate for the declared IDV in case of loss, even if the car’s market value is higher than the declared IDV. This means you could face a shortfall if the compensation you get does not cover the replacement or repair cost.
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Over-Insuring the Vehicle
On the other hand, if you declare an IDV greater than your vehicle’s current market value, you are likely to be charged a higher premium. However, in case of a claim, the insurance company will compensate on the market value of the car and not the inflated IDV. Hence, you’ll be paying extra without getting any additional benefits.
Factors That Influence IDV
Several factors can influence the IDV of your car. These include:
As mentioned, the older your car is, the lower the IDV is due to depreciation.
The original price of the car (without road tax, registration, etc.) when it was new influences the starting IDV value.
The brand, make, and model of the car also affect its depreciation and, hence, its IDV.
If your car is well-maintained, it may have a higher IDV, particularly if it's older. A poor condition vehicle will have a lower IDV.
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Accessories and Modifications
If you have added valuable accessories to your vehicle, you can opt to have these insured by declaring their value when setting the IDV.
IDV in Different Types of Car Insurance
IDV is significant in configuring the coverage in comprehensive car insurance policies. However, in third-party insurance, IDV is irrelevant. Third party insurance entails protection of the insured against any loss or liability to third party, it does not include payment for loss of the policy holder’s vehicle.
Revising IDV During Policy Renewal
The IDV changes when you renew your car insurance policy mainly because the value of your car reduces over time. Good insurance providers should be able to adjust the IDV depending on the age of the car and its condition.
The policyholder must ensure that the new IDV is appropriate to the market value of the vehicle. Choosing the wrong IDV amount can lead to over-pricing of the insurance or under- compensation in the event of a claim.
When choosing or renewing your car insurance policy, carefully assess your vehicle’s market value and select an IDV that balances comprehensive coverage and affordable premiums. This ensures you're adequately protected without overpaying for your policy.