Should you increase the IDV of your car?

What is Insured Declared Value (IDV)?

The Insured Declared Value (IDV) is essentially the current market value of your car. It is the maximum claim amount your insurance provider will pay if your vehicle is stolen or suffers total damage. It reflects the car's depreciation over time and is calculated based on the manufacturer's listed selling price, adjusted for the vehicle's age.

The IDV plays a significant role in determining both your insurance premium and the amount you can claim. Setting an accurate IDV ensures you are neither over-insured (resulting in higher premiums) nor under-insured (resulting in insufficient compensation).

How is IDV Calculated?

The calculation of IDV depends on the vehicle's age and the corresponding depreciation rate set by insurers. Here’s a general guideline:

• Up to 6 months: 5% depreciation

• 6 months to 1 year: 15% deprecation

• 1 to 2 years: 20% depreciation

• 2 to 3 years: 30% depreciation

• 3 to 4 years: 40% depreciation

• 4 to 5 years: 50% depreciation

The IDV for cars older than five years is usually agreed upon between the insurer and the insured, based on the condition of the vehicle, market value, and other factors.

For more information on depreciation rates, refer to irdai.gov.in.

How Does IDV Affect Your Car Insurance Premium?

IDV directly influences your car insurance premium. The higher the IDV, the higher the premium because the insurer is exposed to more financial risk. On the other hand, a lower IDV will result in a lower premium but also limits the amount of compensation you can claim.

Key Takeaways:

• Higher IDV = Higher Premium: You pay more for better financial protection.

• Lower IDV = Lower Premium: Saves money on premiums but reduces claim payouts.

The balance is what matters. Miscalculating the IDV can put you in a tight spot or leave you with less than what you deserve when you file a claim.

Benefits of Increasing Your Car's IDV

There are many instances where increasing your car's IDV will be to your advantage:

• Better Financial Protection: If your car is stolen or totally damaged, a higher IDV ensures you get enough compensation for the car, matching its current market value.

• Peace of Mind: The knowledge that your car is well covered will give you peace of mind in unexpected situations. Whether it's theft or an accident, you won't be burdened financially.

• Protects New Vehicles: For new cars, the depreciation is minimal. A higher IDV would reflect their current market value more accurately.

• Improved Renewal Value of Insurance: A reasonable IDV would have a positive effect on renewals and give you the flexibility to choose from various insurers.

Disadvantages of Increasing Your Car's IDV

Increasing the IDV is better coverage, but it's not always the right decision. Here are some disadvantages:

• Higher Premiums: A major drawback is the increase in premium costs. Higher premiums will place a strain on your yearly budget, especially for older cars with depreciated values.

• Diminishing Returns: In cars older than 5–7 years, the increase in IDV doesn't make much sense. Such cars have their market value significantly reduced, and the additional premium may outweigh the benefits.

• Over-insurance: Setting an IDV above the market value of the car can lead to unnecessary financial strain without tangible benefits. Insurers will only pay up to the market value of the car, irrespective of the IDV.

Should You Increase Your Car's IDV?

Whether you should increase your car's IDV depends on several factors:

• Vehicle Age: New cars will benefit from a higher IDV, while older cars may not be worth the extra premium.

• Market Value: The IDV for your car should be similar to its current market value. Overestimating or underestimating this value leads to either financial loss or paying more premiums.

• Usage and Condition: If you use your car often and it is in good condition, a higher IDV could be justified. However, for less frequently used vehicles, a lower IDV might be enough.

• Financial Factors: Assess if the additional premium is within your budget. If it exceeds the benefits, it would be best to stay with the standard IDV.

How to Change Your Car's IDV

If you're considering reducing your car IDV, here is the procedure you should undertake:

• Call your Insurer: Discuss your car's present value in the market with them and seek to amend its IDV.

• Upload Documents: This might include a car registration document, past insurance history as well as any report over the car's value determination.

• Policies Conditions Before you decide, check how the increase will impact your premium and policy terms.

• Compare Insurers: If your existing insurer is not offering better deals, it is a good time to change the insurer. Websites like Coverfox enable you to compare several policies and IDV.

Real-Life Scenarios: Does Increasing IDV Make Sense?

Scenario 1: A New Car Owner

If you recently purchased a car, setting a high IDV is beneficial. The car’s depreciation is minimal, and higher coverage ensures maximum financial protection.

Scenario 2: An Older Vehicle Owner

For cars over five years old, maintaining a standard or slightly reduced IDV is more cost-effective. The savings on premiums can be redirected toward maintenance or upgrades.

Conclusion

Determining whether to enhance your car's IDV becomes a game of protection versus cost. Increasing the IDV ensures a better financial outcome, though at a higher cost. Low IDV ensures saving of costs but possibly puts one in a vulnerable position to being under-insured.

Consider your car's age, condition, and use, and discuss this with your insurer to set an appropriate IDV. You see, the idea is not to end up paying too much but be adequately covered.

By understanding and adjusting your car's IDV wisely, you can ensure optimal protection and cost-efficiency for your insurance policy.

Must Read: Know Your IDV in Car Insurance