How is Insured Declared Value Calculated for Car Insurance

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The IDV or Insured Declared Value is the maximum compensation amount that an insurance company provides if your car gets damaged beyond repairs or gets stolen. In simple terms, IDV is the value of the vehicle declared by the insured. If you get involved in a car accident, and your vehicle suffers a total loss, the insurance company pays the IDV (which is fixed at the time of buying the policy).

The insurance companies use a simple method to calculate the insured declared value of the car. They consider the listed selling price of the manufacturer of the vehicle minus the depreciation. It is paramount to know that the registration cost and the insurance cost, which you pay upfront while buying the car is excluded from IDV. Another critical thing to know about IDV is that the accessories in your car, which are not factory fitted are calculated separately.

Let us understand how the depreciation of your car affects the IDV.

Vehicle Age % of Depreciation
Less than six months 5%
More than six months but less than one year 15%
More than one year but less than two years 20%
More than two years but less than three years 30%
More than three years but less than four years 40%
More than four years but less than five years 50%

For vehicles that are aged more than five years, the insured declared value of the vehicle is mutually decided between the insurance company and the policyholder. For older cars, instead of considering the deprecation, the insurance company appoints a surveyor to assess the condition of the vehicle to determine the IDV.

How is Insured Declared Value of the Car Calculated?

The IDV is calculated by considering the listed selling price decided by the car manufacturer, and the depreciation of the vehicle and its parts is deducted. The formula to calculate the IDV is

Insured Declared Value = (Car’s listed Selling Price – depreciation value) + (cost of the accessories fitted in your car – the depreciation value of the parts).

The above formula is used only for cars that have additional accessories fitted after purchasing the car. If you do not have any accessories in your vehicle, the calculation is simple.

IDV = listed selling price of the manufacturer – the percentage of depreciation (based on the age of the car)

You can use the IDV calculator for car to calculator to determine the exact IDV for your vehicle.

Let us understand the calculation with an example:

If your car’s value is five lakhs at the time of purchasing a car insurance policy, the insurance company will compensate a maximum of 5 lakh Rupees if your vehicle suffers total damage or gets stolen.

Important things to consider while calculating IDV

  • A lot of people tend to reduce the insured declared value of their car to reduce the premium amount for insurance. However, you must know that it is not a good practice as reduced IDV means you would get less compensation in the event of damage.
  • Getting the correct IDV assessment would help you get the rightful claim amount.
  • Before you agree with the IDV provided by the insurance company, make sure to check with the car manufacturer to know the exact listed selling price of the car.
  • Another critical factor to consider while evaluating the IDV is to check if the premium cost quoted by the insurer is correctly assessed. Some insurers also allow you to negotiate and get the desired IDV.
  • When you renew the car insurance policy, ensure that the premium cost is determined based on the IDV and if your IDV is more than the current market value of the car, you may have to pay a higher premium for a car that costs less. So, make sure to cross-check the IDV.

In a nutshell, IDV plays a vital role in deciding the premium amount both at the time of buying a new policy and at the time of renewal. You must know the exact IDV to get appropriate compensation.

 

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