What is idv Cover in Car Insurance?

BY: Pankaj Bansal, Founder at NewsPatrolling.com

IDV (Insured Declared Value) in car insurance refers to the maximum sum assured that the insurance company will pay in case of total loss (like theft or complete damage) of the vehicle. It is essentially the current market value of your car.

Here’s how it works:

1. Calculation of IDV:
   • The IDV is calculated based on the vehicle’s current market price minus depreciation. As your car gets older, its value depreciates, and hence the IDV decreases.
   • Depreciation rates vary by age. For example, if your car is less than 6 months old, depreciation is around 5%, but for a 5-year-old car, it could be as high as 50%.
2. Importance:
   • IDV determines the premium of your car insurance policy. Higher the IDV, higher the premium.
   • In case of a claim for a total loss, the IDV represents the maximum amount you will receive from the insurer.
3. Adjustable IDV:
   • Some insurers allow you to adjust the IDV within a certain range when you buy the policy. A higher IDV gives better coverage, while a lower IDV reduces the premium but may leave you underinsured.
4. Impact on Claims:
   • In case of theft or irreparable damage, the claim amount paid will be based on the IDV of the vehicle.

Maintaining an appropriate IDV ensures that you get the right value for your car if any unfortunate event occurs.

Significance, and How it Impacts Policyholders:

1. Components of IDV Calculation:

• Ex-Showroom Price: The IDV is primarily based on the car’s ex-showroom price, which is the cost before taxes and registration.
• Depreciation Table: The depreciation is calculated according to a fixed schedule based on the car’s age. For example:
  • Less than 6 months old: 5% depreciation
  • 6 months to 1 year: 15%
  • 1 to 2 years: 20%
  • 2 to 3 years: 30%
  • 3 to 4 years: 40%
  • 4 to 5 years: 50%
• Accessories: Non-factory fitted accessories (e.g., high-end sound systems) may be added to the IDV, but with a separate cover.
• No IDV After 5 Years: For vehicles older than 5 years, the IDV is mutually decided between the insurer and the insured, as there’s no set depreciation schedule after 5 years.

2. Impact of IDV on Premium:

• Direct Relation to Premium: The higher the IDV, the higher the premium for your insurance. This is because a higher IDV means the insurer assumes a higher risk and will have to pay a larger amount in case of a claim.
• Balance Between Premium and Coverage: Choosing the right IDV is crucial. Setting a low IDV might save you money on premiums but can leave you underinsured, especially in case of a total loss. On the other hand, setting a high IDV increases the premium but ensures better financial protection.

3. IDV for Different Insurance Types:

• Comprehensive Car Insurance: IDV is used for calculating the payout in comprehensive policies. This covers both damage to your vehicle (own damage) and third-party liability.
• Third-Party Insurance: IDV is not relevant for third-party liability insurance, as it only covers damage to others, not your vehicle.

4. IDV in Case of Theft or Total Loss:

• If your car is stolen or suffers total loss (e.g., in a major accident or natural calamity), the insurance company will pay you the IDV minus deductibles and depreciation of certain parts (if applicable).
• Example: If the IDV is set at ₹5 lakh and your car is stolen or irreparably damaged, the insurance company will compensate you up to ₹5 lakh, minus any applicable deductibles.

5. Low IDV vs. High IDV:

• Low IDV: Reduces premium but limits compensation in case of total loss or theft. Some people might choose this if they’re willing to bear higher out-of-pocket costs in case of a total loss.
• High IDV: Provides better coverage and higher claim amount, but increases the premium. This might be more useful for newer or more valuable vehicles where replacement or repair costs would be high.

6. IDV for Old Cars:

• For cars older than 5 years, the IDV is based on an agreement between the insurer and the insured. Since the depreciation schedule doesn’t apply, the value is determined using a combination of market value and mutual negotiation.
• In some cases, if a car is too old, the IDV can be nominal, and the insurer may offer a fixed IDV based on the car’s condition, availability of parts, and market demand.

7. IDV and Add-On Covers:

• Zero Depreciation Cover: This cover ensures that no depreciation is deducted while settling claims, so you receive the full IDV amount. It’s especially useful for newer cars.
• Engine Protection Cover: Engine-related damages are not covered under a regular comprehensive policy, but adding this cover ensures your engine is protected as well.
• Return to Invoice: In case of total loss or theft, this cover ensures that the insurance company pays the car’s full invoice value, including taxes and registration fees, instead of the depreciated IDV.

8. IDV and Claims Settlement:

• Partial Damage Claims: For minor or partial damage, the insurance payout is not based on IDV but on repair costs.
• Total Loss Claims: When the car is completely damaged (beyond repair) or stolen, the claim is settled based on the IDV, subject to deductibles.

Practical Example:

• Scenario: You own a car that’s 2 years old, and the market value is ₹8 lakh. Depreciation for a 2-year-old car is typically 20%, meaning the IDV would be ₹6.4 lakh.
• Premium Calculation: With an IDV of ₹6.4 lakh, the insurer calculates the premium, which may be, for example, ₹15,000.
• Claim Settlement: If the car is stolen or suffers total damage, the insurer will pay ₹6.4 lakh (minus any applicable deductible).

Conclusion:

• The IDV is crucial in determining your car insurance coverage and premium. It’s important to set an appropriate IDV based on the current value of your car to ensure you’re adequately protected without overpaying on premiums. Always review the IDV while renewing your policy to align with the car’s depreciating value.