INSURANCEInsured Declared Value

INSURED DECLARED VALUE (IDV)

Insured Declared Value or IDV is defined as a market value of a vehicle. In simple terms, the amount which a vehicle could receive in today’s market value. It is also defined as the maximum sum assured fixed by the insurer to provide in case of any loss or theft of a vehicle.

It helps the insurer to determine claim amounts correctly during claim payments and also used to calculate the premium of the insurance policy. Before knowing in detail about IDV, we have to know motor insurance as follows.

Motor Insurance

An insurance, which is used to provide a coverage from any financial losses and damages for all types of motor vehicles like motor cycle, car, jeep and commercial vehicles is called motor insurance. It is a type of general insurance but unlike any other insurance, the government has made motor insurance mandatory for the safety of the vehicle owner and others.

In India, as per the motor vehicles Act 1988, it is mandatory to have at least third-party insurance for all vehicles to dive legally. Here we have to see detail about third-party insurance.

Other than third party insurance, to protect the damages made by the owner and damages caused by any other incidents like theft, fire, natural calamities, an optional insurance is used, called comprehensive insurance. In comprehensive insurance, IDV is an important element to know the market value of the vehicle to provide the insurance coverage.

Importance of IDV

As said earlier IDV is used to calculate the premium of the insurance and also it refers the market value of the vehicle that is used to get an amount to replace or repair the vehicle. IDV value is directly proportional to insurance premium that for high IDV leads to high insurance premium. But, reducing IDV is not good and it affects your vehicles market value.

Calculation of IDV

The calculation of IDV is very important because it decides the market value of the vehicle and also the premium of the vehicle insurance. Every year the value of the vehicle depreciated 5% to 10% as per the owner’s consent. For damage or theft related claims, the IDV is very useful to get the required amount from the insurer to repair or replace it.

IDV is calculated by using the registered price of the manufacturer and the age of the vehicle with its respective depreciation percentage.

Insured Declared Value = The registered price of the manufacturer – the depreciation value

If a new car is equipped with any other extra accessories, the IDV is calculated by adding the value of that accessories in order to provide claims due to any damage.

IDV = (The registered price of the manufacturer – the depreciation value) + (Cost of the vehicle accessories – the depreciation value of the accessories)

The depreciation percentage of the vehicle is provided below.

Age of Vehicle % Percentage of Depreciation for IDV Calculation
Not exceeding 6 months 5%
6 months to 1 year 15%
1 year to 2 years 20%
2 years to 3 years 30%
3 years to 4 years 40%
4 years to 5 years 50%
Example:

If a value of a vehicle is 5lakh at the time of purchasing the policy. In case of any total loss, one can get full amount 5lakh for replace their vehicle. The amount will be provided in case of total loss only, for any other damages only the required amount is provided to replace or repair the damaged parts with in the policy period.

Factors that Help to the Calculation of the IDV

For the calculation of the IDV of a vehicle, some factors are used. The factors which is used to determine the correct IDV of a vehicle is as follows.

Vehicle’s Age

We all know about the age of a vehicle is directly proportional to the market value of that vehicle. Since, the IDV also represents the market value of the vehicle. So, it is very important to know the age of a vehicle.

Manufacturer Make and Model

Manufacturer fixed a rate for their different types of vehicle depends on the material to make a vehicle and its model. So, each and every vehicle company fixes different rate for their different make and model of vehicle.

Vehicle Registration City

It is very important to know the city of a vehicle registration to calculate the IDV of a vehicle. Because, metropolitan cities like Chennai, Bangalore, Mumbai, Delhi may have a higher risk than the tier-II cities to providing the coverage.

Standard Depreciation

As per the data provided above in the table, for every year the value of a vehicle depreciates as per the age of vehicle. So, for each and every year the IDV of a vehicle affected as per its age.

IDV’s Affecting of Vehicle Insurance Premium

In the above paragraph, already mentioned that the vehicle premium is directly proportional to the IDV of a vehicle. Higher the IDV will made the vehicle insurance premium higher.

Other than Insured Declared Value, other factors also affect the insurance premium of the vehicle like usage, insurance claims, any other personal damages…etc.,

Some of the company may provide lower insurance premium to opt the coverage, but one should notice the IDV of the vehicle before entering in to the insurance contract. For getting the low insurance premium, to deducing the IDV of a vehicle is not advisable because it shows the value of a vehicle in case of any loss or damage.

Advantages and Disadvantages of High/Low IDV

In the following table, the advantages of High and Low IDV are given. Before entering in to any policy contract regarding vehicle insurance, one should remember it.

IDV Level Advantages Disadvantages
 

High IDV

In the event of theft or any loss, it is used to get higher compensation at the time of claim The premium amount will be paid for insurance is high
 

Low IDV

The premium amount will be paid for insurance is low In the event of theft or any loss, the compensation provided from the insurance company is low and that is a loss for the owner

 

Insurance Companies in India
About Home Loans

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button