Insured Declared Value

As per the Motor Vehicle Act, it is mandatory for every vehicle to be compliant with a car insurance policy in India.

What is Insured Declared Value?

In car insurance, the concept of the Insured Declared Value (IDV) is of great importance. Insured Declared Value is the maximum value that the car insurance company pays to the customer for a total loss claim. So, if the car is stolen or damaged in an accident and is beyond repair, then the claim amount that the customer is liable to receive will be equivalent to the IDV of the vehicle.

Who decides the IDV and how it is calculated?

The Insured Declared Value or IDV is the current market value of the car which is calculated by deducting the depreciation on its parts. The cost of car registration and the premiums of insurance are not included in the IDV. If the manufacturer does not fit the car accessories during purchase, then the IDV of these parts are calculated separately.

IDV Calculator for Cars

The IDV is determined by deducting the depreciation of the vehicle from the current selling price of the car. The formula is as follows:

IDV = (Current selling price of the car - depreciation) + (Cost of accessories which are excluded from the selling price - a depreciation of these accessories)

The additional accessories are the one which was not part of the vehicle during the time of purchase. If there are no additional accessories in the car, the IDV is calculated as -

Insured Declared Value = Current selling price of manufacturer - depreciation

Please note that the depreciation is determined from the values given in the tables above.

Depreciation of the Car with Age

Every car depreciates with age. Apart from the wear and tear incurred in the vehicle with usage, the age of the vehicle also contributes to its depreciation value. The depreciation on the car is applicable from the time it is taken out of a showroom. So, even a brand new vehicle which not be a day old is also considered to have depreciated by 5%.

Age of the car	Percentage depreciation (for determining IDV)
< 6 months	5%
> 6 months but not exceeding one year	15%
>1 year but not exceeding 2 years	20%
> 2 years but not exceeding 3 years	30%
> 3 years but not exceeding 4 years	40%
> 4 years but not exceeding 5 years	50%
> 5 years	The IDV is determined on the basis of a mutual agreement between the insurer and the policyholder.

As indicated in the table above, the vehicles which are more than five years old, don't consider the depreciation factor for the calculation of IDV. The assessment of the car is done by the surveyors who are appointed through the insurer. After the survey, the stakeholders(insurer and customer) decide a figure for the IDV through a mutual agreement. The make and model of the car, its type and availability play an essential role in determining its IDV.

A vehicle is tagged as the constructive total loss (CTL) if the cost of retrieval or repair exceeds 75% of its IDV.

Depreciation of car parts for partial loss claims

In case of partial loss claims, the depreciation is applied to the car parts. The following rates are utilized for the replacement of parts in all categories of four-wheelers:

The percentage of depreciation for the nylon/plastic parts, rubber parts, tubes and tires, batteries, and airbags is 50%
The depreciation rate for fiberglass parts: 30%
For all the car parts made of glass: Nil depreciation rate
The rate of depreciation for all the parts is as per the following table:

Age of the car	Depreciation %
Below 6 months	nil
6 months - 1 year	5%
1 year - 2 yrs	10%
2 - 3 yrs	15%
3 - 4 yrs	25%
4 - 5 yrs	35%
5-10 yrs	40%
> 10 years	50%

IDV and the Insurance Premium

The car insurance premium that the customer pays is directly proportional to the IDV of the vehicle. It implies that the premium gets reduced as the age of the car increases. From the perspective of the policyholder, it is not cost-effective to pay a high amount for insuring the old car.

IDV and the Renewal of Car Insurance

The value of the car changes every year because of the depreciation factor. So while renewing the car insurance, you should not just look at the premium quote offered by the insurer, you should also check the IDV that you may get for that premium. Higher will be the IDV for each premium amount; better will be the value of that insurance policy.

Another point of consideration is that when you get a “discount” in car insurance from the insurance company, you should look at the coverage carefully. It is entirely possible that the insurer is offering the discount for any of the following reasons:

• The IDV of the vehicle has been reduced in the policy documentation.
• The insurer has added a voluntary deductible which will have to pay at the time of a claim.
• The benefits of the policy have been reduced.