The digital revolution in the country has seen some notable changes. There is a shift in preference from the physical to online mode. While this is not limited to shopping and retail, but is also seen in insurance and other financial services. There is an increasing preference to avail online facilities.
Be it health or life, home or car insurance, living without one is like throwing caution to the wind. While you do not want to be there, to protect your car, it is always recommended you keep renewing your car insurance from time to time.
When you are all set to renew your car insurance policy, do you simply renew or look for other available options too? If not, you must take a look at the premiums, exclusions, inclusions, additional benefits offered and more. While these factors are essential, they often tend to undermine the importance of setting the right IDV.
So what is IDV?
IDV or insured declared value is the maximum sum assured by your motor insurance policy. In the case of total damage or theft, IDV is paid by the insurance company. The premiums charged are directly proportional to the IDV of the vehicle. To simplify it further, it is the current market value of your car.
How is IDV computed?
In case of a new vehicle, the IDV is computed using the manufacturer’s listed price (ex-showroom price). For older cars, the IDV is adjusted for depreciation. The registration and insurance costs are excluded in this calculation. Some plans offer coverage for the accessories which are not originally included with the vehicle. These accessories can be insured at an additional premium. A few insurance companies may not give you the option to customise IDV in case of third party car insurance.
To put in in terms of formula –
IDV = Ex-showroom price of the car (+) Cost of accessories (-) Depreciation value as per (IRDAI)
Here is the schedule of depreciation for calculation IDV-
|Age of Vehicle||Depreciation rate for the purpose of IDV|
|Not more than 6 months||5%|
|More than 6 months but not more than 1 year||15%|
|More than 1 year but not more than 2 years||20%|
|More than 2 years but not more than 3 years||30%|
|More than 3 years but not more than 4 years||40%|
|More than 4 years but not more than 5 years||50%|
Why is setting the right IDV important at the time of car insurance renewal?
The IDV of your car has a direct impact on the premium and payout in case of complete damage of your vehicle. The IDV closest to the current value of your car will impact the premiums as higher the IDV, higher will be the risk for the insurance company to be settled and vice versa.
When it comes to compensation, declaring a lower IDV will result in a financial loss to the policyholder. Say, your car gets stolen from your parking lot, and you have suppressed the IDV for paying lower premiums, the payout by the insurance company will also be lower, and you shall face a loss. Thus, it is recommended you declare the appropriate IDV and not inflate or suppress it during car insurance renewal.
How to set the correct IDV of your vehicle?
When fixing the IDV, you must compare the available plans among the different insurance companies. Selecting the insurer that offers a higher IDV is beneficial. Then you must proceed with adjusting the correct IDV closest to the actual value of your car.
This way, you can ensure the right IDV will give you the closest value of your car in the event of theft or complete damage. Make sure you declare the correct value for an optimal amount of insurance premium and coverage.