Table of Content
What exactly is IDV in motor insurance?
So what is IDV in motor insurance? IDV is the estimated value of your car at the time of purchasing or renewing the car insurance policy. It is calculated using:
1. The manufacturer’s listed selling price
2. The age of the car
3. The depreciation rate
4. The accessories added to the vehicle
Basically, the IDV in insurance is the current market value of the car, after deducting the depreciation amount.
Read More: IDV in Car Insurance: Meaning and Calculation
How does IDV affect car insurance?
Let us now understand how your car insurance company calculates your insurance premium, taking the IDV into account:
Higher IDV
|
Lower IDV
|
Higher insurance premium
|
Lower insurance premium
|
Higher claim payout potential
|
Lower compensation
|
Better financial protection
|
Reduced coverage value
|
This happens because the insurer’s financial liability increases when the IDV is high. If your car is insured at a higher value, the car insurance company will have to pay more during a total-loss claim. This additional risk increases your insurance premium.
What happens if I choose a lower IDV?
Many car owners reduce the IDV to save money on premiums. While this may reduce the cost now, it can also reduce claim settlement value later on. Let us understand this with an illustration. The actual market value of your car is INR 8 lakhs. Here, the recommended IDV should always be INR 8 lakhs. However, you choose to settle for an IDV of INR 6.5 lakhs. Then, your car gets stolen. The insurer only pays you INR 6.5 lakhs, as that was the IDV you decided upon. Now, to replace your vehicle, you have to pay an additional amount of INR 1.5 lakhs on your own. So, a lower premium at the time of buying the car insurance plan costs you dearly during the claim!
Read More: How to Ensure the Right IDV When Buying Car Insurance for an Old Car
What are the factors that affect IDV and premiums in car insurance?
Let us now take a detailed look at some of the factors that affect IDV in car insurance and, subsequently, the premiums in car insurance:
1. The age of the car
The age of the car is one of the most significant factors that come into play here. As the car depreciates, the IDV in insurance also changes. Here’s a lowdown:
Car Age
|
Approx Depreciation
|
Less than 6 months
|
5%
|
6 months – 1 year
|
15%
|
1 – 2 years
|
20%
|
2 – 3 years
|
30%
|
3 – 4 years
|
40%
|
4 – 5 years
|
50%
|
As the depreciation value rises, the IDV in insurance falls. This leads to premiums usually reducing as well. Hence, you can see the direct relationship between IDV and the car insurance premium here.
2. The make and model
The make and model of your car play a major role in deciding its IDV. Simply put, more expensive cars usually carry a higher IDV in insurance. A top-end model of a car costs more to purchase, contains additional features, and often has costlier parts. Because of this, the insurer’s potential payout becomes higher in case of theft or total loss.
3. The place of registration
The city where your car is registered can also influence your insurance premium structure. Vehicles registered in metro cities like Mumbai, Delhi, or Bengaluru are often exposed to heavier traffic, higher accident risks, waterlogging risks, theft risks, etc. Because of these factors, the car insurance company may classify such locations as higher-risk zones. So, two identical cars with similar IDVs may still have different premium amounts if one is registered in a congested metro city and the other in a smaller city with lower claim risk.
4. The accessories
The IDV in car insurance is also dependent on the accessories you attach to your vehicle. A car that has a higher amount of sophisticated accessories carries a higher IDV. This will be taken into consideration when the IDV is fixed and the premium is calculated.
5. The depreciation rate
The depreciation rate is one of the most crucial factors that come into play when fixing the IDV and the car insurance premium. An old car that has already depreciated will carry a lower IDV and a lower premium, and vice versa. However, your older vehicle may still be very valuable and expensive, so you need to get the car insurance policy from a good insurer like Generali Central. Doing so will ensure optimal protection, even with the depreciation in force.
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