You must have heard people saying that you should have a high IDV while buying a motor insurance. Insured declared value or IDV is the centre point of your vehicle’s insurance policy. IDV also defines the premium that you have to pay to the insurer and the exact value of the car that insurer will pay you upon total constructive loss or in the case of theft. But you might have confusion on how is IDV calculated? IRDAI has set certain rules for computing IDV taking the yearly depreciation on the listed price of the car. For example; for a car which is not older than six months, the depreciation is 5 per cent. This means if you buy a car at an ex-showroom price of Rs 10 lakh, the IDV offered to you will be Rs 9,50,000. IDV calculation is pretty transparent and still, there are a lot of myths attached to it, let’s clear the clouds around a few myths and know if they are true or not.
IDV is the market value of your car
This is not true, people often believe that IDV mentioned on their policy is the market value of their car and if they wish to sell it to someone, they can get the IDV value. This is not the case; people usually go for the maximum IDV an insurer can offer because IDV is derived from showroom price after deduction of depreciation percentage from the listed price. When it comes to calculating the market value, performance of your car, the resale value of the brand etc. are taken into the picture. For instance, depreciation of a car which is five months old is 5 per cent and you cannot expect to sell a car for RS 9.5 lakh you purchased 5 months ago for RS 10 lakhs.
IDV is the yearly claim limit
This is a major misconception linked with IDV which is not true at all. People believe that they can only make claims of up to IDV value in a year but the reality is you can make unlimited number of claims. If a single claim is above 75 per cent of the IDV, the insurer will consider it as a total loss and you will be given the complete IDV. However, you have to pay the compulsory deductibles of Rs 1,000 to Rs 2,000 as file charges also zero depreciation claims are generally limited to two claims a year and after that your policy will be considered as a standard comprehensive policy and standard depreciation rates will be applicable to damaged parts.
Your insurer decides the IDV
No, the reality is that IDV is calculated as per the guidelines decided by IRDAI, depreciation rates of the vehicle as the car gets older is defined up to five years. Moreover, Insurer provides an option to increase or decrease your IDV within a window of ±10 per cent of the IDV. People sometimes decrease their IDV to lower their premium which is not suggested for a car which is not older than five years. Once your car gets older than five years, there is no fixed guideline to decide IDV and is mostly defined mutually by insurer and yourself.
If you are planning to buy or renew your motor insurance in near future, clearing all the doubts regarding IDV or any other aspect of motor insurance is a fruitful task. Ask your insurer or research on the internet and then buy a policy which will not upset you in a worst case scenario.
By Neeraj Gupta- Head of Motor Insurance, Policybazaar.com
