IDV - What Is IDV In Car Insurance?

Posted on Sep, 2019
What is IDV in Car Insurance?
Although a car is considered an investment, it comes with a substantially high price tag. To top it all, buyers have to factor in the additional costs such as registration charges, road taxes and maintenance of the vehicle – all of which are mandatory. As per the Motor Vehicle Act of 1988, all motorists are also obligated to invest in a car insurance policy. This amount adds to the costs mentioned above. However, you must understand why your insurance provider is quoting a specific premium amount and the kind of coverage you can get. You can get a general idea about your insurance coverage through your car’s IDV. But what is IDV in insurance? Let’s find out.

What is IDV?

IDV full form is Insured Declared Value. It is a vehicle insurance term. When you buy car insurance, you get legal and financial coverage against several different road-side scenarios which can lead to the damage, destruction or loss of your vehicle, for which you can file an insurance claim. It is here where IDV of your car plays an important role.

Essentially, the term IDV in insurance is used in reference to the current market value of the insured vehicle. It is merely the highest or the maximum sum your insurance company can pay you as claim amount when you file a car insurance claim. Apart from road accidents, IDV also applies in case your vehicle is stolen or damaged beyond repair. However, you need to have an active insurance policy if you wish to file an insurance claim.

How do insurance providers calculate the IDV payable?

To calculate IDV in insurance, let’s first assume you are purchasing your insurance policy form a specific provider; PINC insurance, for instance. PINC insurance considers two fundamental values – the selling price of the vehicle as determined by the automobile manufacturer and the depreciation of the various parts of the car, as per the wear and tear and current market value of the car. Essentially, the depreciation value of the vehicle is deducted from the actual on-road price paid by the vehicle owner, upon buying the car. Like all insurance providers, PINC insurance uses the following formula to calculate your vehicle’s Insured declared value:

Manufacturer’s registered price – Depreciation Value of the vehicle = Insured Declared Value

The formula mentioned above applies while calculating the actual IDV of your vehicle. Additional costs borne by the vehicle owner upon purchasing the car (such as cost of accessories, music system, GPS screen, etc.) are not considered while calculating IDV. However, if you opt for an additional accessories cover rider, the IDV in insurance is readjusted, in which the cost of accessories is also calculated. In such a case, the following formula is used to calculate the IDV.

Auto Manufacturer’s listed price of the vehicle – the vehicle’s depreciation value) + (Cost of accessories installed in the vehicle - the depreciation value of accessories) = Insured Declared Value
As such, if your vehicle’s market value is fixed at ₹900,000 when you buy your car insurance policy, then the maximum amount you will receive as compensation if your vehicle is damaged beyond repair, stolen or totalled, will be ₹900,000.

How do insurance companies calculate depreciation?

Having explained what is IDV in insurance, let’s understand how depreciation is calculated. Depreciation of the vehicle is an important term used while calculating IDV in insurance. The moment you bring your car home, its value begins depreciating. The vehicle’s value depreciates by 5% within six months of its purchase. Auto manufacturers follow a specific schedule to calculate depreciation. It is as under:

Age of the Vehicle Depreciation calculation chart
New car - 1st year of insurance Vehicle Insured at 95% of its ex-showroom price. Depreciation deducted at 5%
2nd year renewal Depreciation is deducted at 20% and vehicle is insured for 80% of the original showroom price
3rd year renewal Depreciation is deducted at 30% and vehicle is insured for 70% of the original showroom price
4th year renewal Depreciation is deducted at 40% and vehicle is insured for 60% of the original showroom price
5th year renewal Depreciation is deducted at 50% and vehicle is insured for 50% of the original showroom price
6th year renewal onwards 10% to 15% depreciation on vehicle's IDV value of previous year, deduced on year to year basis

Factors that help determine IDV in insurance

IDV in insurance is determined considering several factors such as:
  • Vehicle registration details
  • The city where the vehicle is registered
  • Vehicle Registration date/ first purchase proof as listed on the registration certificate
  • Registration type, i.e. if the vehicle is owned or used privately or commercially
  • Manufacturing details – make, model and year of manufacture
  • Car’s cubic capacity and its description
  • The ex-showroom price of the car
Final word: When you buy your new car and purchase the insurance to go with it, ensure that you ask the insurance provider to explain IDV meaning in insurance. After your vehicle completes five years, you can even change your IDV and increase its value by paying a higher premium amount. Insurance providers like PINC insurance also allow you to increase or modify your car’s IDV, when you renew the policy. You can call PINC insurance’s helpline to get more details on IDV and how to increase it.