Insured Declared Value Explained: How It Impacts Your Auto Insurance Policy

By Megha Jain, Content Writer  |  Tuesday, 07 May 2024, 07:08 Hrs


Insured Declared Value Explained: How It Impacts Your Auto Insurance Policy

What role does the Insured Declared Value (IDV) play in your auto insurance policy? When securing an insurance policy for your vehicle, understanding the IDV is crucial as it determines the maximum sum assured by your insurer in the case of theft or total loss. Often, calculated using the IDV calculator, this value not only influences your potential claim amounts but also affects your premium costs.

Here, we will explore how IDV is calculated, its impact on your insurance policy, and why it's essential for every car owner to grasp its significance.

What is Insured Declared Value (IDV)?

Insured Declared Value (IDV) represents the current market value of your vehicle as assessed by the insurer. It stands as the maximum claimable amount under your auto insurance policy in cases of theft or total loss. Knowing accurate IDV  is important because it directly influences the premium you pay.

How is IDV Calculated?

IDV is calculated based on the manufacturer's listed selling price of the vehicle (i.e., the ex-showroom price) minus the depreciation. Insurance companies use a standard schedule to determine the depreciation percentage based on the vehicle's age. The IDV is then arrived at by applying this depreciation factor to the ex-showroom price.

Components Involved in IDV Calculation

The calculation of IDV begins with the manufacturer's original selling price of the vehicle and then accounts for depreciation over time. The IDV calculator considers several factors such as the age of the vehicle, its model and make, and the city where the vehicle is registered.

  • Ex-Showroom Price: This is the manufacturer's listed selling price of the vehicle when it was brand new. It serves as the starting point for IDV calculation.
  • Depreciation: Insurance companies apply a depreciation rate to the ex-showroom price to account for the vehicle's age and wear and tear. The depreciation rates are predetermined and usually follow a standard schedule provided by the insurer. The depreciation rates vary for different vehicle ages, typically ranging from 5% to 50% over the first few years.
  • Age of Vehicle: The age of the vehicle is calculated from its manufacturing date to the policy inception or renewal date.
  • Total Depreciation Percentage: This is the cumulative depreciation percentage applied to the ex-showroom price based on the vehicle's age. It accounts for the reduction in the vehicle's value due to factors such as wear and tear, usage, and market depreciation.

Once the depreciation percentage is determined based on the vehicle's age, it is applied to the ex-showroom price using the formula mentioned above to calculate the IDV.

Impact of IDV on Your Vehicle Insurance Policy

Understanding the Insured Declared Value is essential for every car owner because it affects various aspects of your insurance policy for car or bike. Here’s how it impacts various aspects of your coverage:

  • Premium Rates: The IDV is directly proportional to the premium you pay. A higher IDV translates into higher premiums because it increases the insurer's liability. Conversely, a lower IDV reduces the premium but may not provide sufficient coverage in case of substantial damage or loss.
  • Claim Settlements: In the unfortunate event of vehicle theft or total loss, the IDV represents the maximum compensation that the insurer will pay. Therefore, an accurately calculated IDV ensures that you receive a fair settlement, equivalent to your vehicle's market value at the time of the policy purchase.
  • Policy Renewal: Each renewal period offers an opportunity to adjust the IDV according to the depreciating value of the vehicle. This adjustment is crucial as it helps maintain a balance between the premium cost and the coverage.
  • Enhancements and Accessories: If you enhance your vehicle with accessories or modifications, it can increase the IDV. It's important to declare these enhancements when renewing or purchasing insurance policy for car or bike to ensure that the IDV remains accurate.
  • Negotiation Power: Knowledge of your vehicle's IDV can empower you to negotiate better terms with your insurer, particularly in terms of premium costs and coverage limits.

Conclusion

The purpose of IDV is not just to determine insurance payouts but also to set a cap on them. It ensures both parties have a clear understanding of the vehicle’s valuation from the onset of the policy. This transparency helps mitigate disputes and ensures fair compensation in the event of an insurance claim.

If you are on the lookout to buy or renew insurance policy for car or bike, check out ACKO’s low premium vehicle insurance. From the comfort of your home, you can now enjoy the convenience of an online process for purchasing or renewing insurance. With ACKO, you get the best of both worlds: affordability and ease of access.

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.

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