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Why Is It Important to Set the Correct IDV While Renewing Your Car Insurance?

By Admin
22 June 2022, 1:00 PM

The car owner has the liberty to alter the IDV, the most important determinant of the premium of the insurance policy, at the time of renewal of the policy. As a policyholder who has fulfilled all his obligations toward the insurer, it is only fair that you seek the right IDV value for your car at the time of renewal. If you wish to know how to go about doing this, read on!

What is IDV and Why is It Important?

The Insured Declared Value (IDV) is defined as the maximum amount that the insurer or insurance company will recompense as a claim amount in case of damage, theft, or total loss of the car of the policyholder. It is one of the most important considerations in determining the premium price of the car. In the simplest of terms, IDV is the market value of the car.

For cars that are older than 5 years, the IDV will be fixed on the basis of mutual agreement between the insurer and the insured. It is done after assessing the condition of the car by the authorised dealer or insurance surveyor. 

How is IDV Calculated?

In mathematical terms, the IDV of the car is calculated as – 

IDV = current market value of the car – deprecation

The current value of the car includes accessories that are added to the car but it does not include the cost of registering the car in the RTO and the insurance charges.

When the car is purchased, the IDV is decided based on the selling price quoted by the manufacturer constructed on the brand and model of the car. 

Why is It Important to Set the Right IDV for Your Car?

  • Price of the premiums: The right IDV will result in lower premiums for the policyholder. If the insured chooses to receive a higher compensation at the time of claim, then he or she may set a higher IDV amount, but this will automatically ramp up the premium amount that he or she will have to pay.
  • Compensation upon total damage or theft of the car: It is the amount that your car is insured for and forms the basis for all future claim settlements associated with the car. The compensation that the insured will receive at the time of claim will be close to the IDV of the car and hence it is important to set the right amount. The car insurance claim amount will be equal to the IDV in only two circumstances – firstly if it is a case of theft and secondly, if the damage to the vehicle is more than 75% of the IDV (total loss).

How to Set the Right IDV for Your Car? 

A step-by-step guide to determine the right IDV for your car is as follows – 

  • Compare the quote offered by several car insurance companies.
  • Use the help of an IDV calculator that is available online to calculate the car’s IDV.
  • One may even consult his or her insurance company for some guidance regarding the setting up of the IDV.
  • One has the option of setting the IDV lower or higher than the market value of the car. But it is best that one resists the urge to do so and sets the IDV closest to the market value of the car.
  • One need not just the exact figures calculated and might opt-in for a round-off figure.

Factors to Consider While Setting the IDV

The factors that are considered while setting the IDV of the car are – 

  • Manufacturer’s price: The manufacturer’s price is the price at which the car is sold by the manufacturer. This listed selling price is taken into consideration while calculating the IDV.
  • Make and model of the car: The type of car in question is important to determine the IDV. Relevant questions would be what is the car brand, a petrol or a diesel variant, what are the accessories to the car, etc.
  • City of registration of the car: One can determine the IDV of the car depending on the RTO the car is registered.
  • Age of the car: The age of the car will decide the IDV of the car. For example, The IDV reduces by 5% the minute the car is taken out of the showroom.
  • Depreciation applicable to the car: Depreciation is the wear and tear costs of the car that is incurred due to usage of the car. The depreciation rates applicable to cars of different age are listed below –
Age of the Vehicle% Depreciation for adjusting IDV
Less than 6 months5%
More than 6 months but less than 1 year15%
More than 1 year but less than 2 years20%
More than 2 years but less than 3 years30%
More than 3 years but less than 4 years40%
More than 4 years but less than 5 years50%

Conclusion 

Thorough research is an indispensable requirement while one is purchasing a car insurance policy. It is important that as the car owner, one must fix the IDV only after factoring in all the relevant considerations in order to get the best price for the car. 

Renew car insurance with an insurance company that offers the most optimum IDV for a fair premium. One must not lower the IDV during the time of renewal just to pay a lower premium as this might expose the car to greater risks and financial losses. 

Neither must one resort to a higher IDV value to command a higher price for the car, for the IDV is the maximum amount that the insurer will pay in case of financial loss. It is prudent to get it insured for the entire IDV.

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