Wondering how IDV is calculated in motor insurance? Picture this: You're the proud owner of a shiny new car. However, what if your beloved vehicle gets stolen or damaged beyond repair? How much would your insurance provider reimburse you?
This brings us to Insured Declared Value (IDV) in motor insurance, a crucial factor in determining compensation.
Motor insurance is a financial safety net that protects you from potential financial losses resulting from theft, accidents, or damage to your vehicle.
It provides you with peace of mind and ensures compliance with the Motor Vehicle Act, 1988, which mandates that every vehicle plying on Indian roads must have valid insurance coverage.
Insured Declared Value (IDV) - The crux of motor insurance
At the heart of motor insurance lies the concept of IDV. In simple terms, IDV represents the maximum sum assured by the insurance company in the event of total loss or theft of your vehicle. It serves as a reference point for determining the premium payable and the compensation amount in case of a claim.
IDV calculation factors
Age of the vehicle: The age of your vehicle plays a vital role in determining its IDV. Typically, as a vehicle ages, its value depreciates due to wear and tear, technological advancements, and market trends. Hence, the older the vehicle, the lower its IDV.
Vehicle manufacturer and model: Your vehicle's brand, make, and model of your vehicle significantly influence its IDV. Vehicles from renowned manufacturers with higher market value tend to have a higher IDV than lesser-known brands or older models.
Vehicle modifications and accessories: If you have made any modifications to your vehicle or added accessories, they may affect the IDV calculation. Insurance providers may consider these modifications while determining the IDV, provided they are legally approved.
Geographical location: The location where the vehicle is registered and primarily used can impact its IDV. Factors such as the prevalence of accidents, theft rates, and regional repair costs may be considered while calculating the IDV.
Additional factors affecting IDV calculation
Apart from the primary factors mentioned above, a few additional elements can impact the calculation of IDV in motor insurance. Let's delve into these factors to gain a comprehensive understanding:
No Claim Bonus (NCB): No Claim Bonus is a reward that bike and car insurance companies provide to policyholders for not filing claims during the policy term. NCB can lead to a reduction in the premium amount during policy renewal. The IDV calculation does not directly impact it.
Insured's declared mileage: The annual mileage declared by the policyholder can also indirectly impact the IDV calculation. Higher mileage indicates more vehicle usage and wear and tear, which can result in a higher depreciation percentage. On the other hand, lower mileage can lead to a relatively lower depreciation percentage.
Market conditions: Fluctuations in the market can influence the IDV calculation. Factors such as changes in the prices of vehicles, spare parts, and repair costs can impact the overall valuation of the vehicle. Insurance companies consider the prevailing market conditions while determining the IDV to ensure it reflects the vehicle's current value.
Insurance add-ons: Insurance add-ons or riders provide additional coverage options to policyholders, such as zero depreciation cover, engine protection, or roadside assistance. The inclusion of these add-ons may affect the IDV calculation. Some add-ons may increase the IDV slightly due to their enhanced coverage, while others may not directly impact the IDV.
NCB example
Let's say you have a two-year-old car with an estimated IDV of Rs.8,00,000. Suppose the policyholder has accumulated a No Claim Bonus of 25% over the years and has declared an annual mileage of 10,000 kilometres. Taking these factors into account, the insurance company adjusts the IDV calculation as follows:
IDV = Rs.8,00,000 - (25% of Rs.8,00,000)
In this case, the No Claim Bonus reduces the premium payable during renewal but does not directly impact the IDV. However, it is essential to provide accurate information about the NCB and declared mileage to ensure fair calculations and avoid any discrepancies in claim settlements.
IDV calculation formula
While different car and bike insurance companies may employ slightly varying methods, the general formula for IDV calculation in India is as follows:
IDV = (Manufacturer's Listed Price - Depreciation) + (Value of Accessories - Depreciation)
The percentage of depreciation varies depending on the age of the vehicle. Typically, insurance companies follow a standardised depreciation schedule:
For vehicles up to six months old: 5% depreciation
For vehicles between six months and one year old: 15% depreciation
For vehicles between one and two years old: 20% depreciation
For vehicles between two and three years old: 30% depreciation
For vehicles between three and four years old: 40% depreciation
For vehicles between four and five years old: 50% depreciation
Importance of accurate IDV
Having an accurate IDV is crucial for both the policyholder and the insurer. For the policyholder, an optimal IDV ensures adequate coverage, ensuring they receive a fair claim settlement amount. For the insurer, an accurate IDV helps mitigate the risk of overpaying or underpaying claims, thereby maintaining profitability and actuarial fairness.
In Conclusion
Understanding how IDV is calculated empowers policyholders to make informed decisions while purchasing motor insurance in India. The process considers the vehicle's age, manufacturer, modifications, and geographical location. By comprehending the significance of IDV, you can choose an insurance policy that aligns with your vehicle's value and adequately safeguards your financial interests.
So, the next time you renew your motor insurance or purchase a new policy, remember that IDV is not just an acronym but a crucial factor in ensuring comprehensive protection for your vehicle.
