Many of us don’t realise the importance of having a comprehensive coverage on car insurance until an unfortunate accident takes place. And many of us are not well versed with terms like the IDV in car insurance. IDV (Insured Declared Value) of your car is basically the amount that the insurer is liable to pay you at the time of a claim due to an unfortunate event. Let us now put light on the importance of IDV.
Importance of IDV in car insurance
Imagine you are involved in an accident where your car has suffered all the blow and you have escaped unhurt. You thank your lucky stars and finally remember about the insurance policy. You never thought it would come in use but breathe a sigh of relief for owning it in this unfortunate situation. You pat yourself on the back thinking you have also evaded any further losses just by having the comprehensive car insurance policy. The same policy you had purchased with very little or no attention and taking only the cheapest quote as a criterion when buying it. At the time it seemed a very straightforward decision, which you felt you nailed it. However, do remember, you didn’t consider any other factors while buying it.
You call the insurance company and give details about the policy. The real impact of the accident hits you now and you get extremely worried –The three simple words “IDV” makes all the difference and impacts you hard,
IDV is thecore component of the car insurance policy. It is the maximum value you will get paid in case of total loss of your vehicle. It is calculated as the current value of the car insured for a particular term. The policyholder will get that sum insured for the defined current value if the car suffers total loss in that particular period.
For example – If your car was purchased for INR. 5 lakh and it has completed more than a year. The IDV value of the car should be around INR. 4 lakh.
The next question cropping in your mind is how did I reach the INR. 4 lakh figure?
Insurance companies do the calculation as per the age of the car and set depreciation pattern. This depreciation pattern is set by IRDAI (Insurance Regulatory and Development Authority of India), which is followed by the insurance companies to calculate IDV.
|Car Age||Depreciation percentage for calculating IDV|
|First 6 months||5%|
|Over 6 months but less than a year||15%|
|Over a year but less than 2 years||20%|
|Over 2 years but less than 3 years||30%|
|Over 3 years but less than 4 years||40%|
|Over 4 years but less than 5 years||50%|
IDV of vehicles over 5 years is arrived at after carrying out an assessment of the vehicle’s condition. Some of the other factors that also come into play in deciding IDV are the make, model and availability of the car.
Things to remember while considering IDV in the insurance policy
As explained above, one of the important factors while calculating IDV is the vehicle’s age. People who are not familiar with the concept of IDV will be tempted to go for cheaper quotes. It would be foolish to sacrifice precious IDV for a small decrease in the premium. It is not a big price to pay for getting a full fair payout for your car. Over the years the premium will come down as the IDV will gradually decrease with the age of your vehicle. It is always wise to choose the correct IDV which represents the true value of the car. In this way, in case of an unfortunate incident, you will be paid a fair compensation by the insurance company. It is also to be noted, that many people confuse IDV with the current selling price of the car, which is just an estimate to help the insurance company and has nothing to do with the actual selling price of the car.
Choosing the right insurance is as important as getting an insurance policy itself. The core factors of the insurance policy cannot be ignored. IDV is one such important core factor of owning a car insurance. Next time, when you renew your car insurance lookout for the magical three letters “IDV” in the car insurance policy.