Demystifying IDV Calculation: Everything You Need To Know

When purchasing or renewing an insurance policy for your vehicle, you'll often encounter the term ‘Insured Declared Value’ or IDV. This IDV is not just a random estimate but an essential component of your vehicle's insurance policy as it can influence your premium and coverage amount. Understanding how the IDV is calculated can help you make more informed decisions regarding your insurance purchases.

Through this article, we aim to simplify the IDV calculation and deep dive into the factors influencing insurance policy for car or bike. We will also look into how to use an IDV calculator to get the accurate IDV value.

Factors affecting IDV

The IDV of your vehicle plays a pivotal role in your insurance policy. It essentially represents the maximum claim your insurer will pay in case of theft or a total loss of the vehicle. Accurately calculating the IDV is crucial, as it affects both the insurance premium and the compensation amount. Typically, an IDV calculator considers several components to calculate the value of IDV, such as:

Manufacturer's listed selling price (MLSP)

The Manufacturer's Listed Selling Price (MLSP) is the initial price at which the vehicle was sold by the manufacturer. It includes the base price of the vehicle along with various additional charges like taxes, registration fees, handling charges, and insurance premiums.

Insurance companies typically commence the IDV calculation with the MLSP as a reference point, as mandated by the insurance policy for car or bike. However, this initial price undergoes adjustments to reflect the current market value of the vehicle, considering factors such as depreciation and market conditions.

Depreciation

Depreciation refers to the decrease in the value of the vehicle over time due to factors like wear and tear, usage, and technological advancements. Insurance companies apply depreciation rates to the MLSP to determine the current market value of the vehicle. Depreciation rates vary depending on the age of the vehicle, with higher rates applied to older vehicles.

Depreciation is a crucial factor in IDV calculation, as it directly affects the payout amount in case of theft or total loss of the insured vehicle. The higher the depreciation, the lower the IDV and vice versa.

Vehicle age

The age of the vehicle is another significant determinant of its depreciation rate and, consequently, its IDV. Generally, newer vehicles experience lower depreciation rates compared to older vehicles. As a result, the IDV of a new vehicle is higher than that of an older vehicle with the same MLSP.

Insurance companies use standardized depreciation tables or formulas based on the vehicle's age to calculate depreciation and adjust the IDV accordingly.

Vehicle make and model

Vehicles from reputed brands or those with high demand in the market tend to retain their value better over time, resulting in lower depreciation rates and higher IDVs. Conversely, vehicles from lesser-known brands or with lower demand may experience higher depreciation rates and lower IDVs.

Add-on accessories

If the insured vehicle is equipped with aftermarket accessories or enhancements that were not included in the manufacturer's listed selling price, the cost of these accessories may be added to the IDV separately. Insurance companies typically require policyholders to declare the value of these additional accessories separately to ensure they are adequately covered in the event of a claim.

It is important to include the value of additional accessories in the IDV as it helps to ensure that the insurance coverage accurately reflects the total value of the insured vehicle.

Market conditions

Insurance companies may consider current market conditions when determining IDV to ensure it reflects the true market value of the vehicle. Factors such as demand for similar vehicles, resale values, economic trends, and changes in technology may influence market conditions and, consequently, the IDV of the vehicle.

By incorporating market conditions into IDV calculation, insurance companies aim to provide fair and accurate coverage that reflects the vehicle's actual value in the current market.

2 simple steps to use and IDV calculator

You can use an online IDV calculator from an insurance company or trusted financial services website. And, then

• Step 1: Input make, model, variant, manufacturing year, registration details, and accessories.
• Step 2: Double-check entered information for accuracy.

Examine the estimated IDV provided by the calculator. You can also make adjustments if any unique features or circumstances were not adequately considered. Once done, use the calculated IDV for purchasing or renewing insurance, ensuring it aligns with coverage needs.

Conclusion

Understanding IDV is an important element for anyone looking to purchase or renew vehicle insurance. An accurate IDV value ensures that you are neither overpaying for your insurance nor underinsuring your vehicle, which could lead to significant financial losses in case of an accident or theft. Using an IDV calculator simplifies this process, making it accessible for vehicle owners to get accurate insurance valuations.

For your insurance needs, ACKO stands out as the ultimate choice. Offering low premium insurance without intermediaries, ACKO ensures cost-effectiveness. Moreover, the entire process of purchasing or renewing insurance is conveniently conducted online, providing utmost ease and accessibility.

Disclaimer: Vehicle insurance is a mandatory requirement as per The Motor Vehicles Act, 1988. Non-compliance can lead to monetary penalties and legal issues. Thus, make sure to buy vehicle insurance and keep the policy active by renewing it before its expiry date. You can buy/renew vehicle insurance easily, quickly, and conveniently via the ACKO website/app for a hassle-free insurance experience.