IDV for Car Insurance – Should I change it at Renewal

IDV or Insured Declared Value is the market value of your car or bike/two-wheeler at a point in time. It is based on the manufacturer’s current listed selling price of the same model of the vehicle, and the age of the vehicle. A standard depreciation table for the vehicle is used for the calculation of IDV, and therefore the insurance premium when renewing car/bike insurance.
 
Context of Using IDV :

• Insured Declared Value is the Sum Insured of your vehicle and is highest when your vehicle is brand new. But as time passes, it will be lower than the price at which you bought the car because vehicles depreciate (reduce) in value. Older the car/bike, lower is the Insured Declared Value and so lower is the premium.
• To be technically correct, please note that Insured Declared Value impacts only the Own Damage (OD) premium component. It has no impact on the Third Party premium part of your total car premium.
• IDV is the maximum amount that the insurer will pay in case of any claim.

IDV – Year-wise Depreciation Table as per Indian Motor Tariff

If you are trying to find out whether you should increase or decrease Insured Declared Value for Car Insurance, it is likely that you know the depreciation rates. Nevertheless, the following tables lists out the current rates. Remember that Insured Declared Value is calculated after netting of the depreciation % from the CURRENT price of exactly the same model of your car/bike. Here are some basic rules on the Car Depreciation Rate and how Insured Declared Value is calculated.
 

So the insurance company has already estimated the IDV of your car based on your car details, and the table above. You can now opt to increase or reduce the IDV within a range which could be different for each manufacturer.
 

IDV and Car Insurance Premium

Checking IDV is important when renewing your car insurance. This is because there is a direct relationship of car insurance premium to the IDV of the car. Higher the IDV, higher is the premium to be paid. If it is reduced, you will pay a lower premium. But before you do either, clearly note the impact of doing that.
 
We will use an example to understand this. Let’s assume that your 3-year old car has an IDV as calculated by the depreciation table, of 5 lakhs. And let’s also assume that the manufacturer gives you a range of 5% to increase or reduce the IDV, i.e. increase to as high as 5.25 lakhs or reduce it to as low as 4.75 lakhs.
 

Increasing or Reducing IDV – Impact on Claim

 
1. Theft or Total Loss of Car : If your car is stolen or if there is constructive total loss (aggregate cost of retrieval and/or repair of the vehicle is > 75% of Insured Declared Value), it is deemed as a ‘complete loss’ of the vehicle. The vehicle is no longer capable of running on the road. In such a case, the insurance company will pay you the Sum Insured, i.e. the IDV of the vehicle as calculated by the depreciation formula for IDV.
 

Increasing the Insured Declared Value

In the example above, if you had increased it to, say, 5.25 lakhs, it does NOT mean that the insurer will pay you that money. So you may not receive more than 5 lakhs for the loss. Therefore, it is advised not to go for a higher Insured Declared Value hoping for the claim amount to also increase.
 

Reducing the Insured Declared Value

There are also those who feel that a lower IDV is better because the premium amount decreases slightly. Stop right there! Why would you want to lose out the value of your car by a few thousand rupees, for just a few hundred rupees extra as premium?. So in the example above, if you were to reduce the Insured Declared Value to 4.75 lakhs, it could mean saving a few hundred rupees. But in case of total loss of your car, only 4.75 lakhs will be paid by the insurance company. Not a good deal at all.
 
2. Resale Value : Similarly, do not presume that a higher IDV will increase the value of your car.
 
Please note that while the claim depends on the IDV, it is also influenced by the type of loss.
 

So what should you do?

1. The value of your car changes every year. When you renew car insurance, don’t go just by premium. Check the IDV that you get for that premium. Higher the IDV per rupee of premium, better is the value.

 

2. Be careful about ‘discounts’ for car insurance. It is quite probable they are offering it for any of these reasons below.
• after reducing your IDV or
• adding a voluntary deductible or
• reducing other standard policy benefits or
• misquoting facts about your car such as declaring an ant-theft device when it is actually not installed, etc.

There could be an issue at the time of claim.  Buy your car insurance online so that there is complete clarity on what you get for the price you pay.
 

3. Choose an IDV that is closest to the real market value of your car.  Don’t try to increase it beyond that. It may not result in a higher claim amount, or get you a better deal if you sell you car.

 

4. Don’t try to save on premium by reducing the Insured Declared Value. It is just not worth it.