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  • Everything You Need to Know About Insured Declared Value (IDV) in Car Insurance

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    As per the Motor Vehicles Act, it is mandatory for every car owner to insure his or her vehicle with at least a third-party liability cover. Car insurance, be it comprehensive or third-party liability cover financially protects you and your car from liabilities towards damage, loss or injury incurred as a result of mishap. A comprehensive car insurance policy protects you from third-party liabilities and own damage liabilities while a third-party liability insurance plan covers third-party liabilities alone.

    Types of Car Insurances

    There are two kinds of car insurance policies offered in India based on the coverage:

    • Third-party liability or liability only cover offers basic motor insurance coverage that limits to third-party liabilities alone. As per the Motor Vehicles Act, it is mandatory to avail a third-party car insurance in the least. Third-party liabilities include liabilities towards injury to a third-party, liabilities towards external property damage and liabilities towards damage to third-party vehicle
    • Comprehensive car insurance plan covers third-party liabilities and own damage liabilities that one incurs as a result of mishap. The insurance plan covers the following:
      • Liability towards damage/loss to the third-party vehicle involved in the mishap
      • Liability towards damage/loss to the insured vehicle involved in the mishap
      • Liability towards injury tof the third-party involved in the mishap
      • Liability towards injury to the policyholder involved in the mishap
      • Liability towards damage/loss to an external property involved in the mishap

    What is an IDV (Insured Declared Value)?

    Insured Declared Value is the market value of your car at any given point in time after taking the depreciation factor of the vehicle into account. The insurer decides on the claim amount to be disbursed to the policyholder based on the vehicle's IDV, hence it is also the maximum claim amount that the policyholder receives at the time of claim settlement.

    The vehicle's IDV is determined based on the following factors:

    • Place of residence
    • The engine capacity
    • Date of vehicle’s registration
    • The make and model of the car
    • Type of the vehicle ownership
    • The vehicle’s ex-showroom price

    How IDV is calculated?

    The Insured Declared Value is calculated based on the geographical location, selling price of the vehicle, make and model of the car, etc. as mentioned above. IDV is inversely proportional to the age of the vehicle; as the age of the vehicle increases, the IDV of the vehicle will decrease. When the insurer determines the IDV of the vehicle based on the current selling price of the vehicle rather than the amount you paid to purchase the vehicle. The additional parts fitted in your car is also taken into consideration at the time of calculating the vehicle’s IDV.

    Age of the car IDV Percentage Ex-Showroom Price
    0 months to 6 months 95%
    6 months to 1 year 85%
    1 year to 2 years 80%
    2 years to 3 years 70%
    3 year to 4 years 60%
    4 year to 5 years 50%
    5 years and above Flexible, as agreed between the insurer and the policyholder

    You can calculate the vehicle’s IDV using the below equation:

    Insured Declared Value = (Ex-showroom price of the vehicle - value of depreciation) + (Total price of extra vehicle accessories - total depreciation value of the accessories)

    How IDV is calculated for vehicles more than 5 years

    For vehicles that are above 5 years old, the IDV is calculated based on the vehicle's condition. The insurer and the policyholder will discuss and come to a mutual agreement regarding the IDV for a vehicle older than 5 years. The condition of the car, age of the car, total miles travelled, etc. are some of the factors that determine the IDV of the car. It is vital to know that a vehicle’s IDV decreases if the age of the car increases. Hence, taking a car insurance for a vehicle that is older than 5 years is not advisable.

    Why you shouldn’t claim a higher or lower IDV that the market value of the car when taking out a car insurance

    Sometimes people opt for a higher or lower IDV that the actual invoice cost at the time of car insurance purchase. The main reason behind declaring a lower IDV than the original cost of the car is for lowering the insurance premium that need to be paid. In case of a mishap, if one has opted for a lower IDV, one would have to spend more on the liabilities that are not covered by the insurance claim. There are also times when the policyholder declares a higher IDV than the actual cost of the vehicle at the time of policy purchase. At the time of claim settlement, even if you have declared a higher IDV, due to the vehicle’s age and the rate of depreciation one would get a lower claim amount.

    Insured Declared Value plays a vital role in deciding the insured amount one should receive at the time of claim settlement.