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Note: This is your car's recommended IDV as per IRDAI's depreciation guidelines However, insurance companies allow you to modify this IDV within a certain range (this range varies from insurer to insurer). Higher the IDV, higher the premium you pay.
The depreciation of a motor vehicle is the loss in the value of the vehicle over time due to wear and tear. It kicks in as soon as you take delivery of a vehicle, and increases as the vehicle continues to age. In short, car depreciation is the difference in the total value of the car when it is purchased and sold. Vehicle depreciation directly impacts the Insured Declared Value (IDV) and also causes depreciation on the cover leading to change in insurance premiums.
The Insurance Regulatory and Development Authority of India (IRDAI) has standardised the depreciation rates on cars. Depending on the car depreciation rate applicable for your car, the car insurance premium and the amount that you receive when you file a car insurance claim may vary.
In the table below, you will get a better understanding of how much a car depreciates in its value, percentage-wise over different periods of time.
The Car’s Age |
The Percentage of Depreciation for Calculation of IDV |
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% |
A fact to note is that the vehicle depreciation rate for distinctive components of your car are assessed separately. The depreciation rate of motor vehicles that is mentioned in the previous table serves the purpose of identifying the Insured Declared Value of any given car.
Indian insurers provide you a car depreciation calculator for car valuation, or an IDV calculator on their respective websites. A car depreciation calculator in India computes vehicle depreciation and helps you to determine your used vehicle cost after you factor in the rate of depreciation.
In other words, the IDV calculator makes use of the age of your car, its condition, and mileage in order to determine the valuation of your vehicle presently. It does this instantly. Such a tool can be tremendously useful when you wish to sell your car or buy car insurance when you have a second-hand vehicle.
The IDV calculator is very simple and effective. Enter in the registration number of your car, the year of its manufacture, the brand and model of the car, the resident city/registration, etc. Sometimes, to generate more accurate results, several car depreciation calculators suggest that you enter the mileage and details concerning the car’s general condition. Calculating car depreciation rate in India using this tool produces results that give you insights into the following:
Amount you will have to receive, or pay, while selling, or purchasing, a vehicle
Amount to consider while trading your car at any dealership
IDV insurance and costs of car insurance premiums
If you wish to calculate the motor depreciation of your car by yourself, you may be able to do so using any of the following formulas:
1. Calculating car depreciation by using the Prime Cost Technique
Here’s the formula for calculating vehicle depreciation rate using the Prime Cost Technique:
The cost of running the car X (number of days the car is owned ÷ 365)
X (100% ÷ effective life in number of years)
By using this method, the depreciation of the car is calculated as a set percentage of its total cost.
2. Calculating car depreciation by using the Diminishing Value Technique
Here’s the formula for calculating vehicle depreciation rate using the Diminishing Value Technique:
The purchase value of the car X (number of days the car is owned ÷ 365)
X (effective life in number of years ÷ 200%)
In this method, the car depreciation per year is calculated using the car’s base value.
The depreciation of a car indicates the lowering in its value over a span of time due to several factors. These may include the vehicle’s age, current maintenance/condition, engine’s size, overall mileage, and more. The car’s depreciation impacts its insurance costs directly because a vehicle which is more prone to accidents or damages tends to attract a higher insurance cost.
If you maintain your car well enough or buy a car with a good resale value, you can always minimise car depreciation and get a higher resale value for your car. Additionally, you can also purchase a zero depreciation cover as an add-on to your comprehensive car insurance. With this cover, you can claim the amount that is deducted as depreciation under this cover. A trusted platform like Bajaj Markets can help you choose the right insurance cover from some of the biggest insurance providers in India.
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FAQs on Car Depreciation
To calculate the depreciation value of a car, you can use the online IDV calculator. All you need to do is enter your car’s ex-showroom price in the calculator, along with its registration year. The calculator will then compute your vehicle’s depreciation value.
There are many factors that cause depreciation in a car’s value. Some of them are listed below.
Wear and tear of the car
Improper or lack of servicing
Irregular or lack of car maintenance
The depreciation of a motor vehicle kicks in as soon as you take delivery of a vehicle, even if you do not use it very often. As a car continues to age, the rate at which it loses value also goes up.
IDV stands for Insured Declared Value which is the maximum sum an insurer will provide for a vehicle if the vehicle suffers total loss or theft. IDV is estimated after deducting the depreciation of the car and its accessories. Hence, higher the car depreciation, lower will be the IDV.
Usually, a car loses 10% of its value as depreciation after the first month of use. After the first year of ownership, the value of a new car drops up to 20%. The depreciation continues every year at the rate of 10%.
There is no specific rule to determine the depreciation rate of a car per mile and it differs from one vehicle to another. The cost of a car's depreciation per mile is the average annual cost of depreciation divided by the average number of miles driven per year. So, you can calculate the depreciation rate of your car per mile through this method.
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