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IDV – Here’s revealing a few ‘MUST-KNOW’ Facts!

Published On Jul 12, 2019 5:30 AM By InsuranceDekho

If you are planning to buy car insurance, you must first understand how car insurance premiums are calculated.

What Must You Know About IDV Before Buying Car Insurance?

If you are planning to buy car insurance, you must first understand how car insurance premiums are calculated. This is because the Insured Declared Value (IDV) of the vehicle is an important element while evaluating car insurance prices.

Understanding the IDV concept

While many people understand the importance of having a comprehensive car insurance plan available at affordable premiums, not many realise how the choice of their vehicle’s IDV can have a direct bearing on the premiums that they have to pay during the policy period. The IDV of your car cannot exceed its market price and is not calculated randomly. The car insurance companies will mainly consider the following factors before arriving at the IDV of your car. These include:

  • Registration details of your car;
  • City where your car was registered;
  • Date of the first purchase of the vehicle;
  • Nature of registration;
  • Car manufacture details including make and model;
  • The cubic capacity of the car’s engine;
  • Current showroom price of the car.

While there are many ways to arrive at the correct value of the IDV, insurers mostly apply the thumb rule to quote the IDV of your car based on which your car insurance policy would be priced.

IDV = (Car’s price listed by the manufacturer – Depreciation value calculated on the car) + (Price of the accessories not included in the list price of the car – Depreciation value calculated on the accessories)

Does it help to choose IDV different from the car’s market value?

Many people have a limited understanding of the IDV concept. This explains why they opt for an IDV amount that is different from their vehicles’ market value. Instead of fretting on the correct choice of IDV, it is important to realise what happens if you choose an IDV that may be lower or higher than your car’s market value.

Choosing a lower IDV may help you save on premium charges. However, this also means that in the event of a theft or accident, you will be compensated with a reduced claim amount. Apart from it if, the expenses on treatment from the accident are high, this would imply that you will have to pay for the expenses from your pocket.

Choosing a higher IDV means that the insurance company will be liable to pay you a higher amount in case of loss of your car. However, this would also translate into increased premium payments. Also, at times you may receive a delayed claim payment as the concerned insurance company will be looking for ways to reject your claim.

How to choose the right IDV for your car?

The ideal IDV amount must be comparable to the approximate market value of your car. The basic underlying factor for calculating the IDV of any vehicle is the selling price listed by the manufacturer. So, you may choose the right IDV amount by making use of the following basic calculation.

IDV = Showroom Selling Price of Your Car * Standard Depreciation Rate

The standard depreciation rates are detailed in the Motor Tariff Act and depend on your car’s age.

Buying a car insurance plan is akin to making a long-term financial investment. Hence, it is important to decide the IDV of your car wisely to ensure adequate claim amount, when required.

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