When buying a car insurance, several factors determine its premium. But insured declared value or IDV is a critical one. You might have come across this term, whether you are a first-time buyer or not, but a common question that troubles buyers’ is should the IDV be lowered? While unformed buyers may choose to lower it, it has long term consequences that may lead to financial loss. This article describes answers that very burning question of why you must not lower the IDV. But before that, it is essential to understand what it means:
What is IDV?
IDV or its long form, insured declared value, is the maximum amount that the insurance company pays in the event of a total loss or constructive total loss when it comes to damages to your car. In addition, it is that compensation that an insurance company provides when an incident of theft occurs, or the car is damaged beyond repair in an accident. Since it is that amount that the insurance company undertakes a risk for your car, it directly impacts the car insurance prices.
IDV is often misconstrued to be the resale value of the car, but in fact, it is the approximate value of the vehicle. Further, it is a crucial component in determining car insurance premiums as described above.
How do you arrive at IDV?
The way how insurance companies determine your car’s IDV is using a mathematical expression thereby helping drive uniformity. It is expressed as follows:
Insured declared value (IDV) = (Your car’s ex-showroom price – Depreciation) + (Cost of accessories fitted – Depreciation thereon)
While it can be difficult for you to determine the IDV, making use of tools like IDV calculator can help you. Depreciation is an integral part that influences the IDV. It is that component of time and usage which all equipment and machineries undergo thereby impacting your car too.
Now, coming to the main question – Should you declare a lower IDV for your car?
The simple answer to it is no. Lowering your IDV helps to reduce the premium of your policy, but it will also reduce the amount of compensation offered by the insurance company. Since your car insurance policy is meant to cover any unexpected losses, lowering the IDV may require you to pay from your own pocket, thus, making you pay for the repairs even when you have an insurance cover.
This can be explained using an example.
Say, you purchase a car insurance policy for your car whose present valuation is ₹10 lakhs. However, the insurance company, by default offers a coverage of ₹7 lakhs only. In the event of a theft, total damage, or even damages beyond repair, the insurer will pay only ₹7 lakhs and the balance will have to be borne by you as a loss. If, you increase the same IDV to it present valuation of ₹10 lakhs, you shall be full compensated for the damages. * Standard T&C Apply
To conclude, IDV plays a critical role and must not be ignored when selecting a car insurance policy. Although, the effect of IDV is directly proportional to the premium, it is worthwhile to pay for the nominal increase to avoid a hefty loss in future. To balance the premium vis-a-vis the IDV coverage, a car insurance premium calculator can come handy. Also, remember that insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.
