Here’s How IDV Impacts Your Motor Insurance Premiums
We all know that motor insurance is mandatory as per the law. The Motor Vehicles Act of 1988 makes it compulsory to have insurance cover for all vehicle types, be it for commercial use or private.
While a vehicle used for business purposes is required to have commercial vehicle insurance, those used by individuals are required to get insured with a private insurance cover. That being said, there are various factors based on which the premium of your policy is determined. One such critical factor is insured declared value or IDV.
What is IDV?
IDV in motor insurance is the approximate current valuation of your vehicle. The insurer pays this amount in case of total damage or complete loss of your vehicle. Although IDV is the closest to your vehicle’s market value, it is arrived at after deducting depreciation. For instance, if the vehicle is fitted with additional accessories, the concerned IDV is arrived after considering these spares’ valuation.
How does IDV impact the premium?
The premium for your policy is based on multiple factors, but the IDV plays a significant role. It is because IDV forms a crucial part of your comprehensive car insurance policy. You need not declare the IDV for third-party policies since no coverage is offered for your car in case of damages. Since IDV is the maximum amount of coverage offered by your insurer, it directly impacts the premiums. That makes it imperative to know how it increases or decreases your motor insurance premiums. Any adjustment in IDV will increase or decrease the premium too. Thus, it is crucial you set the right IDV for your vehicle.
How is depreciation accounted for in calculating IDV?
Depreciation is the reduction in the value of your vehicle over a period of time. The value of your vehicle begins to decline the moment it leaves the showroom. Let’s look at the rates of depreciation for calculating IDV.
|Age of Vehicle||The depreciation rate for the purpose of IDV|
|Not more than 6 months||5%|
|More than 6 months but not more than 1 year||15%|
|More than 1 year but not more than 2 years||20%|
|More than 2 years but not more than 3 years||30%|
|More than 3 years but not more than 4 years||40%|
|More than 4 years but not more than 5 years||50%|
While the above rates are provided for vehicles up to 5 years of age, the insured declared value for older vehicles than computed by a mutual agreement.
Is it prudent to lower the IDV to save premiums?
No, it is not advisable to lower the IDV to save some premium as it can be counterproductive in the event of a total loss of your vehicle. While it might initially help you save premium, it will end up causing a financial loss at the time of claim.
Finally, using a vehicle insurance calculator can help you estimate the impact of changing the IDV on your insurance premiums. Make the smart choice by selecting an IDV based on the additional fitting and accessories to your vehicle to ensure comprehensive coverage at all times.