The most important factor while calculating the sum assured for car insurance is the IDV, i.e. the Insured’s Declared Value. It is fixed at the beginning of the policy term for each insured vehicle and remains the same during the entire period. If you have bought a new car, then its IDV (and of those accessories fitted in the car) will be fixed based on the manufacturer’s listed price for the model of the car at the beginning of the policy. Then, at every renewal, the value will be adjusted as per the depreciation applicable.
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How is IDV Calculated?
First of all, do understand that it is the amount that will be paid to you in case of theft or complete damage to the car. This is what determines the car insurance premium you will have to pay. It is based on the car model, brand, and age of the car. IRDAI has made guidelines to calculate IDV. As per the norms, the maximum IDV for a car can be 95% of its showroom price. And this IDV stays the same till the car is six months old. Beyond that, the value starts depreciating.
Vehicle Age and Percentage of Depreciation
Following is the schedule of depreciation as determined by the authorities
| Age of Vehicle | % Depreciation to Adjust IDV |
|---|---|
| Less Than Six Months | 5% |
| More Than 6 Months But Less Than 1 Year | 15% |
| More Than 1 Year But Less Than 2 Years | 20% |
| More Than 2 years But Less Than 3 Years | 30% |
| More Than 3 Years But Less Than 4 Years | 40% |
| More Than 4 Years But Less Than 5 Years | 50% |
For vehicles that are more than 5 years old, there is no formula to calculate IDV. To get a car insurance policy issued for such old vehicles, would entirely depend on the understanding between a car owner and the insurance provider. After thoroughly checking the condition of the car, the IDV can be determined by the insurance company, and based on that premium amount can be agreed amount. This IDV is calculated as the manufacturer’s selling price, minus any depreciation. Also, the registration and the insurance costs are not part of the Insured Declared Value. If you want to include any accessories that are not fitted by the manufacturer as part of the insurance, then their value can be calculated at an extra cost.
Is IDV Important?
This is extremely important because it is IDV that will determine how much car insurance premium you will have to pay and in case of an accident or theft, what will be the value of the car to be reimbursed to you. Lower the IDV, lower the premium, and vice versa. Some people do try to put a wrong estimate to lower the IDV, but in the long run, it proves as a loss-making decision. In case of an accident, the insurance provider will not look at the market vehicle of your car, but at the IDV mentioned at the time of taking the policy and car insurance claims will be adjusted accordingly. Paying a higher premium might pinch in the beginning, but the benefits of doing the same far outweigh the initial expenses. Following the guidelines only work in the car owner’s favor and it is a must to mention the correct IDV when buying a car insurance policy. Car is an important asset, preserve it!