The jargons and terminologies used in car insurance documents can be very confusing. Not understanding even one concept can land you in financial trouble at the time of making the claim. If you have purchased a car policy, then one concept that consistently appears in your car policy is insured declared value. If IDV sounds like an alien concept to you, then here’s a short brief on the same.
In simple terms, IDV is nothing but the current market value of your car; it is the maximum sum that your car insurance company is liable to pay you if your vehicle is stolen or is totally damaged. IDV of the car is arrived upon on the basis of the ex-showroom price of your vehicle, without factoring its depreciation value.
IDV is an important factor that your car insurer considers when calculating the premium of your car. The greater the IDV, higher is the premium, less the IDV, lesser is the premium.
Since a car is a depreciating asset, the Motor Tariff Act has presented the below standard rates of Depreciation.
Beyond five years, the IDV is determined on the basis of mutual understanding between you and the insurance company. When calculating IDV, vehicle registration cost and the cost of the vehicle is not taken into account. The cost of accessories that are not originally part of the vehicle are not considered when calculating the IDV. Additionally, the accessories and the electrical items fitted in the car are not a part of the manufacturer’s selling price, then the IDV for the same is also fixed likewise.
IDV= (Manufacturer’s listed selling price- depreciation) + (Accessories that are not included in listed selling price-depreciation) and excludes registration and insurance costs.
Factors Considered While Calculating the IDV of a Car
IDV for your vehicle can only be claimed under the following circumstances:
When deciding on the insured declared value, always keep in mind that it has a heavy influence on the premium you pay. Understand that declaring low IDV will attract low premium, but provide you with less insurance cover. Also, in case your car meets with an accident and the damages caused are more than the IDV of your car, then you will have to share the additional expenses from your pocket. Whereas, if you declare a high IDV, you will have to pay a high premium. Also, a high IDV does not necessarily provide you with a high selling value than its actual current value. So when choosing the IDV for your car, always declare an IDV that is close to the market value of your car. Decreasing the IDV will attract less premium and low coverage, whereas, increasing the IDV will make you liable to pay high premium and will offer you good coverage. Keep in mind that as your car gets older, its IDV too decreases.
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