Your car is your prized possession. It is because you spent a considerable amount of money on it that you want to keep it as safeguarded as possible. Moreover, since your car is subject to accidents and breakdowns, therefore, it is all the more important that you keep it as insured as possible.
This is the reason why buying car insurance is also legally mandatory as per the Motor Vehicles Act, 1988. Most people who buy car insurance, however, remain unaware of several things that may have a bearing on their premium and sum assured.
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So, if you’re planning to buy a car anytime soon, then know how its premium is calculated. The first step in understanding this would be to know more about the Insured Declared Value (IDV). Let’s help you understand it better-
What is Insured Declared Value?
IDV refers to the market value of your car at a given point in time. This value is the highest sum of money that you can claim from the insurer against the car insurance policy. It is fixed on the manufacturer’s listed selling price of the same model of the car and the age of your vehicle at a particular time.
- In case your car gets stolen or gets damaged beyond repairs during the policy period, then the company will pay you the IDV amount against the total constructive loss suffered by you.
- For instance, if your two-year-old car’s market value is fixed at five lakhs at present, then the maximum amount that the company will compensate you for will be five lakhs.
- The IDV is highest when the vehicle is new but reduces as the car depreciates.
- Also, IDV has a bearing only on Own Damage (OD) premium component, and not on the third-party premium part of your total car premium.
|IDV = (Manufacturer’s current listed price – Depreciation) + (Accessories not included in Listed Price – Depreciation)|
- What Is the Relation Between IDV And Premium?
There is a direct correlation between IDV and premium payable on the insurance policy. Greater the ID, higher will be the premium to be paid. However, as the vehicle depreciates, the IDV comes down. As a result of this, the premium to be paid also comes down.
Moreover, IDV is determined by depreciation charged every year. The Insurance Regulatory and Development Authority of India (IRDAI) has stated that the maximum declared value of a vehicle cannot be more than 95% of its showroom price. Hence, within six months of your purchase, the value of your car depreciates by 5%.
- What Is the Rate of Depreciation Charged?
Depreciation on your car is calculated according to the following-
|Your vehicle’s Age||% depreciation on the current listed model value|
|Not exceeding 6 months||NIL|
|6 months-1 year||5%|
|Exceeding 10 years||50%|
- Should You Increase or Decrease IDV Of Your Car?
You may be wondering that since there is a direct relation between IDV and premium, how would it turn out to be if you increase or decrease your IDV. So, find out more about this.
In normal circumstances, when the car meets with an accident or breaks down, then the company reimburses you for the loss which is usually less than the IDV. However, the IDV amount is paid in full when the car either gets stolen or if the constructive loss is more than 75% of the IDV. Such cases are deemed as complete loss of the vehicle.
- Increasing your IDV– Increasing the IDV would mean that you would also have to pay an increased premium on it each time. However, you must know that the claim will only be settled, taking into consideration the current market price as stated by the car manufacturer.
- Decreasing your IDV– Those of you who feel that reducing your IDV would require you to pay less premium than otherwise, you are mistaken. Yes, reducing the IDV would mean saving a few thousand on premium, but that also means that you’ll receive less claim amount when you need it at the time of a contingency. This wouldn’t be a good deal for you at all.
Moreover, note that your claim amount does not depend on IDV alone. It also depends on the type of loss. So, increasing or decreasing your IDV may not mean much.
- Things to Keep in Mind When Buying Car Insurance
Next time when you buy car insurance or renew one, don’t just check the premium charged, also check the IDV considered. Higher the IDV per rupee of premium paid, better is the value offered. Also, choose an IDV that is closest to the real market value of the car.
You can buy your car insurance plan online as that will give you more clarity on what you’re paying for. Insurers like tataaig.com also offer their insurance plans online, which means you can buy a suitable plan for yourself with minimum hassles and maximum transparency. They also offer add-ons like zero depreciation car insurance, which can be of great value to you given the role of depreciation in your claim settlement.
Such a cover provides you for the amount that would otherwise get deducted from your claim amount as depreciation. Depreciation significantly reduces your claim amount so that this cover can be of great value. Zero depreciation car insurance will ensure that whenever your car meets with any eventuality, then the protection is adequate to help you meet the expenditures. However, this cover is only for vehicles less than five years old.
So, if you’re planning to buy car insurance, buy the most comprehensive one to keep all your related worries at bay!