Insurance Uncovered

What is IDV? How is it calculated for a car?

-Ram

In motor insurance, third-party cover is mandatory while own-damage (OD) cover is optional. While a third-party cover protects the life or property of a third party by the insured vehicle, the OD cover insures your vehicle against damage or theft.

In the OD cover, the premium is based on IDV or insured declared value. It is the maximum value the insurer will pay if the vehicle is stolen or completely damaged.

IDV is the market value of a vehicle at any particular time less depreciation (depending on the age of the vehicle).

Knowing how IDV is calculated is important as it is the SI (sum insured) under the insurance policy and decides your premium.

In IDV calculation, depreciation for the vehicle is based on the Motor Tariff Act, and moves up from 5 per cent (for vehicles not older than six months) to 50 per cent (for vehicles of over four years and less than five years). For vehicles of over five years, IDV is mutually agreed between the insurer and the customer.

Today, when you buy a motor insurance policy, the insurance company or the aggregator will ask you for the car model and the year of purchase and you will see different insurers offering you different IDV for the same car. The IDV varies because each insurer’s basis of arriving at the car’s market value is different, though the depreciation will be as per the rulebook.

Take for instance, a Maruti Suzuki Baleno LXI bought in 2017. If you check the IDV for the car at insurance portals such as Policybazaar.com or RenewBuy.com, you will find that premium quotes appear for a range of IDV — from ₹3.4 lakh to ₹5.2 lakh. The difference is because some insurers work on the updated ex-showroom price, while some do not. There is difference even in the way the age of the new vehicle is calculated — some insurers take into account the month and year of manufacture while others take into account the date of registration.

There are also insurers who give IDV in a band that is +/- 10 per cent on the price you originally paid for the car to make up for the increase/decrease in price by the manufacturer over the years.

The first time you buy a motor cover, you know the price of the car and that at which you should insure it. But when you go for subsequent renewals, you may get confused. Your IDV any year should ideally be the previous year’s value of the car less 10 per cent depreciation.

Note that you are free to decide the IDV for your vehicle. But if you ask for a low IDV, though, you will save on premium, you will be compensated with a lower claim in case of damage or theft.

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