To usher in the New Year, Anil bought himself a brand new Maruti Swift car that he had been eyeing for quite a long time. The shiny red car was fully accessorized with a state of the art music system, air conditioner and comfortable seats. However, when he searched for car insurance online to find an appropriate policy for his expensive vehicle, Anil was shocked. He learned the car’s value had already depreciated within 15 days of being on the road.
The insurance company offered him 95% of the car’s market price as the insured declared value (IDV). This meant that the vehicle was undervalued by 5 % due to depreciation. Many first time car owners like Anil are often stunned to know their brand new vehicles have already lost some of their IDV by the time they’ve purchased it.
Here we explain IDV and how it affects your car insurance
What is Insured declared Value or IDV?
IDV is the maximum sum assured which is fixed by the insurer when you buy a car insurance. The amount is based upon the ex-showroom price of the car. The insurer pays this amount to the car owner in case of theft or damage to the vehicle. One has to pay a higher premium to get a higher IDV.
There is a standard formula which is used to calculate IDV in India. It is calculated using the following formula:
IDV = (Ex-showroom price-Depreciation of car) + (Vehicle Accessories Cost-Depreciation of these items)
So, if you bought a car for Rs 5 lacs, it would depreciate by 5% i.e. Rs 25,000. And thus, its IDV would be Rs. 4.95 lacs (5 lacs -25,000).
How much does a car’s value depreciate?
A car’s value is dependent upon its age. The depreciation percentage increases every year the car is used. It loses over 20% of its actual value after the first year of being bought. The value further decreases by 10% each year annually. Cars older than five years have a 50% depreciation rate. For instance, a three year old car’s value depreciates by 30%. So a Rs 5 lac car’s value after three years would be Rs 3.5 lacs.
Here’s a handy table of the depreciation percentage of the car against its age to help you understand better:
|Age of the car||Percentage depreciation for IDV calculator|
|Less than 6 months||5%|
|More than 6 months but not above 1 year||15%|
|More than 1 year but not above 2 years||20%|
|More than 2 years but not above 3 years||30%|
|More than 3 years but not above 4 years||40%|
|More than 4 years but not above 5 years||50%|
In case this car is stolen or damaged, the insurer would pay the car owner an amount which is maximum of Rs 3.5 lacs of the insurance policy.
Zero depreciation car insurance – To ensure the car owners are fully reimbursed for their damaged or stolen vehicles, there are many zero depreciation car insurance policies available. You can opt for the comprehensive Bajaj Allianz Car Insurance policy on Finserv MARKETS which offers a zero depreciation cover.
Under a zero depreciation car insurance policy, the car is insured at its market value. In case of loss, the owner is paid the full claim amount without the deduction of the existing depreciation rate. While some policies offer zero depreciation policy on new cars only, some insurers provide 100% replacement cost in the first year only. It should be borne in mind that zero depreciation policies generally come with a higher premium.
Thus, if Anil’s car gets damaged in an accident and he has opted for a zero depreciation policy, the insurer will reimburse him the actual cost borne by him on repairing the car. There would be no depreciation deduction.
Proposal to make invoice price as IDV – The Insurance and Regulatory Development Authority (IRDAI) has proposed to make the invoice or on road price of the car as the IDV. This means a car’s IDV would include its ex-showroom price, cost of manufacturer’s accessories and registration cost. Moreover, no depreciation rate will be deducted from the IDV for first three years of a new car. This would be beneficial for the car owners.
Till the time IRDA’s proposal is implemented, having a zero depreciation car insurance policy is a wise option. You can opt for the Bajaj Allianz Car Insurance policy on Finserv MARKETS which, along with a zero depreciation cover, comes with several perks like 24X7 assistance, access to a pan Indian network of 4000+ garages, minimum documentation needed and much more!
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