Why your vehicle’s insured value is an important part of your insurance policy

We all hate nasty surprises, don’t we? Imagine if, God forbid, your car meets with a horrific accident and the vehicle is damaged beyond repair– even as you, thankfully, survive unscathed! Or, for that matter, what would your plight be if your brand new car is stolen hardly a few weeks into your new love affair with that dream vehicle!

While it might be tough to comfort you in such an unfortunate situation. But what could hopefully help matters is a substantial cash payout from your insurance company. And that’s when a thing called “The Insured’s Declared Value” or IDV comes into play.

What is IDV? Why is it important?

In India, car insurance policies consider the vehicle–and not the owner/driver–as the “insured”. The Insured’s Declared Value of a car is the amount the insurer will pay you – assuming you have opted for a comprehensive insurance plan – if your vehicle is stolen or damaged beyond repair. Also read: How to calculate your car insurance premium

The insurance company will also reimburse the entire IDV if the total cost of repairing the car following an accident turns out to be in excess of 75% of the figure.

Those of you who have only a third party plan can forget about getting any amount on this front, since such policies do not cover damages to your own cars. Also read: 10 Points to remember while choosing car insurance

How is IDV calculated?

Let’s say you bought a Hyundai i10 in July 2012. Now, based on Hyundai’s listed selling price for this model, your insurer will compute the IDV after deducting the depreciation amount (as per the following table).

[table id=1047 /]

So in this case, if the Hyundai i10 has an ex showroom price of Rs 6 lakh, the insurer would subtract Rs 30,000 on account of depreciation, and fix an IDV of Rs 5.7 lakh for the policy year.

Keep in mind that the above calculation excludes the registration costs, and will go up if you have added extra electrical or electronic accessories and want to insure them. Also read: 5 tips to reduce car insurance premium

IDV is not fixed–keeps changing

When your comprehensive cover is ready for renewal after every 12 months, the insurer will revise the IDV based on the depreciation of your car (according to its age).

IDV of old/outdated cars

If you have a car that is more than five years old, or is still running fine with an “obsolete” model that has been discontinued, then the insurer will not use the above table to come up with an IDV. Instead, it will hire surveyors and car dealers to examine the condition of your vehicle before giving you a quotation. Also read: 6 key top-up covers for car insurance

What’s the appropriate IDV?

While buying a comprehensive insurance policy, you should try to get an IDV that more or less reflects the resale price of your car, i.e. the market value of the vehicle. Always seek out a policy that gives you the maximum IDV on your vehicle, even if it requires you to pay a marginally higher (say, 5%) premium.

Opting for more depreciation on your car, i.e. having a reduced IDV, might save you a few hundred rupees on your renewal premium. But if you have an accident and the car is declared beyond repair, then you would have to settle for a significantly lesser amount then you could have got otherwise. Also read: Seven basic things about car insurance