Insured Declared Value (IDV): Complete Car Insurance Guide

Motor insurance is mandatory under the Motor Vehicle Act 1988. When you opt for comprehensive coverage or your own damage insurance plan, IDV is an important aspect you must consider before signing the policy papers.

Let’s understand in detail what IDV is, how it works, its calculation, and how it impacts the premium on your car insurance.

What Is IDV (Insured Declared Value)?

Insured Declared Value (IDV) is the maximum amount your motor insurance provider would pay if your vehicle is stolen or is completely damaged with no scope for repair. It is the current market value of your vehicle that the insurer would pay in the event of a total loss.

The IDV significantly impacts your cost: a higher IDV increases your premium, while a lower IDV reduces it.

Why Is IDV Important in Motor Insurance?

Here’s why IDV is an important feature in your motor insurance plan.

Total Loss Limit

A total loss occurs when the vehicle is stolen or is severely damaged beyond repair. In such cases, the IDV is the maximum amount that the insurer will pay in any of these events.

Fair Value

The IDV is the true current value of your vehicle after deducting depreciation, allowing you to get the fair claim amount.

Impact on Premium

Policyholders can choose to increase or decrease their vehicle’s IDV. A higher IDV results in a higher premium, while a lower IDV leads to a lower premium.

How Is IDV Calculated?

When calculating the IDV of your vehicle, the insurer considers the manufacturer’s selling price (i.e., the ex-showroom price), the vehicle depreciation, and the value of any insured accessories installed after purchase.

The following is the formula used to calculate a vehicle’s IDV under a motor insurance policy.

IDV = Manufacturer's Listed Selling Price − Depreciation + Accessories (if insured separately)

Note: The IDV includes the value of accessories installed after the vehicle purchase, provided that they are covered under the motor insurance policy. However, it does not include registration fees, road tax, or the insurance premium. These expenses are not covered and have to be borne by the policyholder.

How Does Depreciation Affect a Vehicle’s IDV?

Here’s how depreciation affects your vehicle’s IDV.

Age-based Reduction

As the vehicle ages, the standard depreciation rate prescribed by the IRDAI (Insurance Regulatory and Development Authority of India) is subtracted from the manufacturer’s listed selling price. The higher the rate of depreciation, the lower the IDV of your vehicle.

Standard Schedule

The standard depreciation schedule is set as per IRDAI guidelines, which significantly impacts a vehicle’s IDV.

Mutual Agreement

In most cases, for vehicles older than 5 years, the IDV is determined mutually by the policyholder and the insurer based on the vehicle's prevailing market value.

Lower Payouts

A high depreciation rate lowers your vehicle’s IDV, resulting in a lower insurance premium but higher out-of-pocket expenses in the event of a total loss or theft.

Lower Premiums

If you opt for a low IDV, it reduces the insurer’s liability, and the premium for own vehicle damage also decreases.

Vehicle Age Depreciation Schedule as per IRDAI

The following is the standard depreciation schedule set by the IRDAI based on the age of the vehicle.

Part-Specific Depreciation Rates

The following are the part or component-specific depreciation rates set by IRDAI.

The IDV of a vehicle decreases when you renew your motor insurance policy due to depreciation, wear and tear, and decreasing market value.

Factors That Affect Your Vehicle's IDV

The following are the factors that affect your vehicle’s IDV in motor insurance.

Vehicle Age

The vehicle’s age significantly impacts its IDV. As the vehicle gets older, its market value decreases due to depreciation and normal wear and tear. The older the vehicle, the higher the depreciation and the lower the IDV.

Vehicle Model and Variant

The vehicle’s manufacturer, model, and variant also affect its IDV, as vehicles from famous brands such as Rolls-Royce, Mercedes-Benz, and Porsche generally retain their value better than mass-market or low-demand vehicles. Such vehicles have higher IDV, leading to higher premiums.

Accessories

Extra components, custom modifications, and electrical and non-electrical fittings installed after purchasing the vehicle are added to the vehicle’s IDV, provided that these fittings are covered under the policy.

For certain accessories, such as nylon, rubber, or fibreglass parts, separate depreciation rates are applicable.

Registration Location

The city or zone where your vehicle is registered also affects its IDV due to factors such as local market conditions, accident rates, and vehicle usage patterns.

How IDV Affects Your Car Insurance Premium

Here’s how the IDV of your vehicle affects your motor insurance premium.

Directly Proportional

When your vehicle has a higher IDV, the insurance provider bears the risk of a higher payout in the event of theft or total vehicle damage, increasing the premium you pay on the insurance.

Cost Savings

If you opt for a lower IDV, the insurer's risk of a significant payout decreases, leading to a lower premium. However, a low IDV increases your financial burden if your car is stolen or totalled.

Age-based Reduction

As your vehicle ages, its depreciation increases, which lowers its IDV and, in turn, reduces your insurance premium over time.

Overstated IDV

Policyholders choosing a higher IDV than the market value would have to pay a higher premium.

What Happens If You Choose a Lower IDV?

Here are the consequences of choosing a lower IDV than the market value for your vehicle.

Lower Cost

If you opt for a lower IDV, you will be charged a lower premium as the risk of high claim payout reduces for the insurer.

Low Claim Amount

If your vehicle is stolen or is completely wrecked and beyond repair, the insurance company will pay only the lower IDV limit you opted for, not the actual market price.

Higher Out-of-Pocket Expense

Since your vehicle has a low IDV, you are liable to pay for the extra money if you want to buy a new vehicle to replace the old stolen or totaled one.

Old Vehicles

A lower IDV is suitable for older vehicles as they depreciate significantly over time, aligning the insured value with the vehicle’s true market worth. This would help you save money on premiums if you own an old vehicle.

Should You Choose a Higher IDV?

Here are some factors you must evaluate if you’re considering setting a higher IDV for your vehicle.

Higher Payouts

If you opt for a higher IDV for your vehicle, you will get a higher amount if your car is stolen or totally damaged in an accident.

More Costly

Your insurance premium price would increase as the insurance company bears the risk of high claim payout.

Suitable for New Cars

A higher IDV is suitable for vehicles under three years old, as the depreciation rates applicable to them are low.

Common Mistakes People Make When Selecting IDV

The following are some common mistakes people make when selecting the IDV for their vehicle.

Choosing Too Low an IDV

Some policyholders opt for the lowest IDV to reduce their motor insurance premium, but it significantly reduces the maximum payout amount if your vehicle is stolen or damaged.

Not Updating During Renewal

The Insured Declared Value (IDV) is automatically reduced by the insurer at each policy renewal based on the standard depreciation rates prescribed by the IRDAI. However, policyholders should still review it to ensure it matches the actual market value.

Ignoring Aftermarket Accessories

If the policyholder fails to declare electrical or non-electrical accessories, those items will be excluded from the IDV claim payout.

FAQs

What does IDV mean in the field of car insurance?

IDV stands for Insured Declared Value, and it is the actual value of your vehicle as computed by the insurance company. This is the maximum amount the insurer will pay if your vehicle is stolen or damaged beyond repair.

How is the IDV of a car calculated?

The IDV of a vehicle is calculated by deducting depreciation from its ex-showroom cost, and adding the value of any insured accessories after deducting their depreciation.

Can I increase the IDV of my vehicle?

Yes, you can ask for a higher IDV within limits set by the insurers, but it must reflect the vehicle’s actual market price. The insurer would evaluate your request based on the actual price, and the request may be approved if it is justifiable.

Will a higher IDV lead to an increase in the insurance premium?

Yes, a higher IDV may lead to the insurer paying a higher amount in the event of a total loss or theft of the vehicle.

Is IDV the same as market value?

No, IDV and market value are different. IDV is the insured value used for claim settlements, while market value is the price at which you can sell your vehicle in the open market.