Debunking Myths About IDV in Car Insurance
Debunking Myths About IDV in Car Insurance

Buying a car is an exhilarating experience. The unparalleled convenience of having your personal vehicle without having to deal with the hassles of public transport is why most people opt for one. Moreover, making impromptu travel plans becomes all the more possible. The various finance options available have further fuelled the preference for a car among the youth. But four wheeler insurance is one of the mandatory requirements that need to be complied with. When purchasing a car insurance policy, there are various jargons you might come across, a critical one being the Insured Declared Value or IDV. But there are quite a few misconceptions about IDV. Let us understand the truth behind these misconceptions. 

But first, what is Insured Declared Value or IDV?

Insured Declared Value or IDV is the maximum amount that an insurer pays in the event of total loss, constructive loss or even theft. Thus, for common understanding, it is the maximum amount for which your vehicle can be insured. This IDV is crucial in deciding the premium of your four-wheeler insurance. Thus, it is recommended you do not undermine the importance of setting the right IDV. 

Now let’s look that various myths associated with IDV. 

Myth 1 – IDV is the maximum amount that can be claimed in one year

While there is a misconception about the maximum amount of claim is limited to the IDV, the reality is you can claim unlimited times during your policy tenure. If any of your claim crosses 75% of the IDV set at the beginning, the insurance company will presume it to be a case of total loss. In this situation, you shall receive the entire amount of IDV but also bear the compulsory deductibles. In the event your claim is lower than 75% of the insured declared value, you need to pay for the deductibles as well as depreciation on the spares (unless you’ve opted for a zero depreciation add-on cover). 

Myth 2 – IDV is set only by the insurer

The fact about IDV is grossly misstated by way of this myth. The IDV for any vehicle is determined according to the guidelines published by the Insurance Regulatory and Development Authority of India (IRDAI). The depreciation on your car is determined in slabs for each year of its use up to five years. Different rates of depreciation are prescribed to arrive at such IDV. But after 5 years, the regulations do not prescribe any guidelines. At time of car insurance renewal online for such old vehicles, insurance companies determine the IDV based on a mutual agreement with the policyholder. Moreover, the insurance companies allow you to opt for a higher IDV provided that the variation is in the range of 10% of the actual amount. 

Myth 3 – IDV is the current price of the car in the market

A common misconception is that IDV is the market price of the car. The reality is the IDV is much lower since the element of depreciation impacts the current valuations. Depreciation impacts all vehicles and thus, IDV is not synonymous to market value. In fact, it is the current valuation of your car after accounting for depreciation. 

Myth 4 – A smart move is to declare a lower IDV to save on premium

While this may be half-baked truth, the other side of declaring a lower IDV is far more impactful. A lower IDV for your car will result in lower compensation from the insurance company. So, you might save on premium at present, but will have to shell out far more that what you might have saved at the time of claiming total loss. 

Myth 5 – A higher IDV results in better resale value

It is not recommended to declare a higher IDV. Since the market value of your vehicle is not solely based on the IDV but in fact, a combination of many different factors, a higher IDV result in higher insurance premiums. To understand the impact of IDV on your premium, you can use a car insurance premium calculator.

Now that you these myths about IDV are debunked, you are in a better position to make a smart choice in selecting an insurance cover and setting an appropriate IDV for it. 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.