24 Jun 2019
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If you are planning on buying bike insurance or car insurance for the first time, you may be unfamiliar about the various factors involved in the calculation of the insurance premium. IDV or Insured Declared Value is a crucial component that determines your motor insurance premium as well as the maximum compensation receivable in the event of the total damage of your vehicle. As a motor insurance policyholder, it is essential to understand the nitty-gritty of IDV.

The IDV is actually a simple concept often perceived as complex. In this article, we will explore everything you need to know about IDV in the simplest manner.

What is IDV? 

Insured Declared Value (IDV) refers to the actual market value of your vehicle. The IDV determines the maximum amount of claim; a policyholder can get in the event theft or total damage of the vehicle. Hence, declaring the correct IDV amount is crucial for the owner of an insured vehicle at the time of claim settlement. In other words, IDV is the maximum sum assured that a policyholder could get as compensation for total loss or theft of the insured vehicle. Hence, IDV can also be equated to the current market price of your insured vehicle. In case, your insured vehicle is stolen or completely damaged in an accident; the insurance company will ensure that at least the current market price of the vehicle is paid to the claimant.

What is IDV (Insured Declared Value) in Insurance

How Is The IDV Calculated?

Your insurance provider will determine the IDV of your vehicle by considering the manufacturer’s listed selling price of the insured vehicle’s model, age and brand. In addition, the insurer will adjust the selling price for depreciation to derive the IDV of the vehicle. It’s important to note that the registration and the insurance cost of the insured vehicle are not included in the IDV value.

The price of any accessories that are not originally fitted by the manufacturer will be calculated separately as an additional amount if insurance is required for the accessories. Post that, the final IDV will be decided based on a mutual agreement between the insurance provider and the vehicle owner.

However, to help you get a clearer picture, here’s the depreciation schedule used to fix IDV in insurance:

Age of the Car

% of Depreciation for IDV Calculation

Up to 6 Months

5%

6 Months to 1 Year

15%

1 - 2 Years

20%

2 - 3 Years

30%

3 - 4 Years

40%

5 Years

50%

IDV Calculator

Using the IDV calculator will allow you to determine the market value of your vehicle (car or bike) and estimate the premiums you need to pay on your insurance policy. The tool calculates the IDV based on the age of the motor vehicle and helps the owner understand the amount they might receive as compensation after total damage or theft.

Factors That Help Determine the IDV

Following are the factors that influence the IDV in insurance.

  • Age of the motor vehicle: The age of your car or bike is one of the influential factors that help determine the IDV in insurance. Just know that the older your vehicle is, the lower the IDV will be.
  • Make and model of the motor vehicle: Taking into account the brand of the motor vehicle will help determine its damage repair costs. For instance, the IDV for BMW vehicles will be higher in comparison to the IDV of Hyundai vehicles.
  • Depreciation rate: The IDV in insurance is calculated based on the depreciation rate mentioned in the table above.
  • Area of vehicle registration: The city/state where you register your motor vehicle also influences the IDV. The IDV will be different for cars and bikes registered in metropolitan cities as compared to other remote areas/towns in India.

Summarizing IDV in Insurance

What is IDV in Insurance

Things to Keep In Mind While Calculating IDV

The following things need to be taken into consideration when assessing the IDV of your vehicle –

  • The market value of the car/bike is calculated by deducting the depreciation rate from the current price. This amount is the maximum compensation that you will receive in case of total damage/loss of your vehicle

  • Evaluating the correct IDV of the car might cost you lower premiums

  • However, to reduce the premium amount, do not reduce the IDV of your car. It might cause problems when making a claim later in the future.

  • Declaring the right IDV amount would mean rightful claim

  • Do self-evaluation of the IDV and research on the same before agreeing to the IDV value set by your insurer

  • Additionally, check the premiums charged and see whether the amount is correctly evaluated based on your vehicle’s IDV

  • Car insurance plans should provide sufficient coverage, and hence the IDV value should be satisfactory. Know that you can negotiate with your insurer to get the desired IDV amount

  • When it comes to car insurance renewal, ensure that the new premium amount charged is determined based on the IDV.

Why Is It Important To Know The IDV Of Your Vehicle?

IDV is one of the most crucial components of a vehicle insurance as it is the amount that you will be entitled to receive if your vehicle is stolen or suffers total damage. Hence, it is essential to get an IDV that is close to the current market value of your car. However, many policyholders avoid declaring the correct IDV fearing an increase in premium. This is because the higher the IDV of the vehicle, the higher will be the motor insurance premium. Most insurers offer to decrease IDV from 5% to 10% based on the customer’s preference.

Nevertheless, it’s important to choose the right IDV of the bike or car as it may hamper your claim process and cause unnecessary losses. The whole point of getting insurance is to avoid losses and failing to declare the right IDV defeats that purpose.

Impact of IDV on your Bike or Car Insurance Policy

The IDV plays a vital role in the calculation of the own damage component of the motor insurance premium. You may already know that the Own Damage or OD cover, though very important, is an optional cover. OD coverage will only be applicable when you choose a comprehensive motor insurance policy. It offers compensation in case your vehicle is damaged or stolen. Hence, this component of the premium can be up to 2-3 percent of the IDV of your vehicle and will vary according to its age and cubic capacity. Therefore, the higher the IDV, the higher will be your vehicle insurance premium and vice versa.

So, if you haven’t calculated the IDV of your vehicle, it will be nearly impossible to estimate your own damage premium.

What Happens to the IDV During Motor Insurance Policy Renewal?

When renewing your car or bike insurance, never agree to pay the premium blindly as per the insurance quotes. Always make it a point to check whether the IDV quoted in the policy justifies the premium charged by the insurance provider.

If the value of the IDV is not mentioned in the policy, get in touch with your insurer and get the required details. It’s important to remember that the premium of a comprehensive vehicle insurance policy is impacted by the IDV.

Hence, one has to be careful to not understate or overstate the IDV; this would, in turn, be a hassle at the time of claim settlement.

Importance of Declaring Correct IDV

Did you know? Your IDV keeps falling as your vehicle ages. In insurance terms, the vehicle begins depreciation from the time it is purchased. Hence, IDV keeps falling, and so do the insurance premiums. But if anything were to happen to your vehicle (total damage or theft), the insurer will compensate for the loss incurred based on the IDV declared by you at the time of purchasing.

Now, you may think that declaring a higher IDV will get your more money in compensation and vice versa. However, that is not the case. Here’s what happens to your claim settlement when you declare a lower/higher IDV.

  • Claim Settlement on Lower IDV: In case you happen to declare a lower IDV than the reasonable market price, you will end up receiving little compensation when you make a claim. A plan to save on premiums will only cost you more during unfortunate events of large claims or theft of the vehicle.
  • Claim Settlement on Higher IDV: On the other hand, people also tend to declare high IDV. They assume that this will increase the claim amount or at least help them when selling the car in the future. However, know that IDV is the maximum compensation that you will receive from your insurer in case of total loss/damage.
    During the claim, your insurer will take into consideration the age of the vehicle and determine the depreciation before finalizing the compensation amount. Therefore, you can also end up receiving a low claim amount despite seeking a higher IDV and paying higher premiums.

Hence, declaring the correct IDV of your vehicle needs to be in accordance with the vehicle age and model.

IDV for Older Vehicles

IDV comes into the picture only if you have a comprehensive bike or car insurance, which includes Own Damage cover. The premium of the own damage cover is calculated based on the IDV of the vehicle. As the vehicle ages, the own damage premium decreases due to depreciation.

The IDV of the vehicle aged 5yrs & above is based on factors such as:

  • The Manufacturer(brand)
  • Car Model
  • Availability of the Spare Parts

Basically, the IDV is predetermined for older vehicles based on a mutual arrangement between the insured and the insurer. 

Conclusion

Buying car insurance or bike insurance is a long-term investment. Hence, declaring the IDV correctly at the time of buying an insurance is very important. At Finserv MARKETS, we would like to remind all vehicle owners that the IDV should be according to the age and model of their vehicles to avoid any discrepancies during claim settlement. Buying motor insurance with Finserv MARKETS is a simple and quick process.

What’s more, by buying bike insurance or car insurance, you can enjoy exclusive benefits such as cashless claim settlements, quick claim settlement, round-the-clock assistance and much more. To buy or know more about motor insurance visit Finserv MARKETS.

FAQs on IDV in insurance

  • ✔️What is IDV in bike insurance?

    The Insured Declared Value or the IDV in bike insurance is the amount received in compensation in case of repair or replacement expenses incurred by the policyholder. At times, it is the maximum sum assured amount received in case of theft or total loss incurred in an accident including the insured vehicle.
  • ✔️Why is IDV important?

    It is essential to set a rational IDV when buying bike insurance. It is recommended to set the IDV amount close to the market value of the two-wheeler at the given time. So, in case the vehicle is stolen or damaged beyond repair in an accident, the insurer will compensate to an amount close/equal to the IDV determined. Moreover, in case of reimbursement of damage expenses incurred by the bike in any event, the insurer will bring IDV down by 5-10% (as chosen by the policyholder).
  • ✔️Is higher IDV better?

    To simply put it, high IDV will attract high premium rates and vice versa. Hence, it is advisable to set the IDV amount close to the market price of the bike at the given time. Declaring high IDV will only attract high premium but will not provide high compensation in case of theft/damage to the bike.
  • ✔️How can I increase the IDV on my bike?

    Technically, you cannot increase the IDV of your bike. The best practice is to declare IDV close to the market price of the vehicle. Also, it pays off to regularly maintain your bike and replace any damaged and old parts. The IDV in bike insurance comes in handy in case of theft or total damage incurred in an accident.
  • ✔️Why is it important to declare the correct IDV?

    It is necessary to determine the correct IDV when buying bike insurance. This is because it also determines the maximum amount you will receive in compensation in case of theft or damage incurred by your bike in an accident.
  • ✔️What will happen if I incorrectly declare my IDV?

    If you declare an incorrect IDV amount, you are asserting a low/high value of your bike. This means when you claim on your bike insurance, you will receive lower compensation (in case of a lower IDV) or stand a chance of getting your claim rejected (in case of a higher IDV).