Facts About Insured Declared Value of Your Car Insurance Policy

Facts About Insured Declared Value of Your Car Insurance Policy

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Car insurance is a compulsory requirement stipulated by the Motor Vehicles Act. It is a simple and straightforward choice if you know what to look for, else it is deemed to be a confusing decision by most buyers. While the jargons are what make it a complicated purchase, understanding them beforehand can simplify the buying process. Hence, it is imperative to not skip on this step. One such critical terminology that is mentioned in all car insurance plans is the Insured Declared Value or IDV. This article mentions three such facts about IDV in car insurance so that you can get a clearer understanding of the insurance policy when buying one.

1. Insured Declared Value = Sum insured of policy

IDV is the maximum amount the insurance company pays the policyholder in the event of complete damage to the car or damage beyond its repair. Complete damage can be a case of total loss but also includes constructive total loss. If you find your car damaged beyond repair, you can raise an insurance claim for which the insurer shall pay the insured declared value as specified in your insurance policy. For this reason, it is critical to set the right IDV when buying a policy. To summarise the above, IDV is the current valuation of your car which the insurance company pays and hence, it is critical to set it right. * Standard T&C Apply

2. The premium directly impacts due to IDV

There is a direct co-relation between the premium amount charged by the insurer and the insured declared value. Such co-relation is established as the insurance company undertakes the risk which is the amount of IDV for your vehicle. On those lines, understating the IDV will lower the risk the insurance company has to cover for and thus lowering the premium amount. However, reducing the IDV impacts the compensation which the insurance company has to offer. Hence, you must keep that in mind when lowering it. On the contrary, overstating the IDV requires the insurance company to offer greater compensation in the event of total loss and hence pushing up the car insurance prices. * Standard T&C Apply

3. Depreciation of your car impacts the IDV calculation

The insured declared value of your car is arrived after subtracting depreciation from the manufacturer’s listed price and the accessories thereon. Thus, as your car ages, the lower will be its IDVbecause of depreciation. While depreciation is applicable on all motor vehicles, it cannot be escaped. However, by availing a zero-depreciation add-on, it can be minimised. * Standard T&C Apply

The rates of depreciation are standardised thereby ensuring same calculation for all policyholders. They are as follows:

Age of the vehicle Depreciation for the purpose of IDV Resulting Insured Declared Value
Less than and equal to 6 months 5% 95%
Greater than 6 months but not more than 1 year 15% 85%
Greater than 1 year but not more than 2 years 20% 80%
Greater than 2 years but not more than 3 years 30% 70%
Greater than 3 years but not more than 4 years 40% 60%
Greater than 4 years but not more than 5 years 50% 50%
Greater than 5 years Mutually decided by insurance company and policyholder

* Standard T&C Apply

With this information, setting the right IDV is straightforward. Make sure to not underestimate or overestimate the amount as it has a bearing on the premiums. To get an idea on how it impacts the premium, you can make use of a car insurance calculator. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale. 

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