When you buy a car insurance policy, you may see the associated phrase Insured Declared Value (IDV). Many car owners ignore this and consider it technical jargon. But IDV is one of the most important aspects of what financial coverage your policy provides.
Selecting the appropriate IDV, and more often, a higher IDV can mean the difference in obtaining an adequate payout in the event of a theft or total loss versus a shortfall. This article discusses what IDV means in car insurance, its importance, the impact of IDV on your premium and claims, and how to choose the correct IDV for your car.
Understanding IDV in Car Insurance
What is the IDV of car insurance? Insured Declared Value is the maximum sum assured that your insurer will pay if your car is stolen or a total loss. In layman’s terms, IDV is the value of your vehicle in the market. It is the amount you would receive from your insurer if the car is declared a total loss.
Formula for Calculating IDV
According to IRDAI (Insurance Regulatory and Development Authority of India), insurers calculate IDV using this formula:
IDV = Manufacturer’s Listed Selling Price – Depreciation + Value of Accessories (if any)
The manufacturer’s listed selling price refers to the ex-showroom price of the car (excluding registration and road tax). Depreciation is applied based on the vehicle’s age.
IRDAI Depreciation Table
Here’s the official depreciation chart used to calculate IDV:
| Vehicle Age | % Depreciation Applied |
|---|---|
| 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% |
| Above 5 years | Decided mutually between insurer and policyholder |
Example:
- If your new vehicle ex-showroom price is ₹10,00,000 and it’s less than 6 months old, its IDV value will be: ₹ 10,00,000 – 5% depreciation = ₹9,50,000.
- If the same car is 3 years old: 10,00,000 – 40% depreciation = ₹6,00,000
As you can see, the IDV value of a new car reduces as your vehicle ages, and so does the claim amount you can expect for a total loss.
Why Is IDV Important in Car Insurance?
Many car owners ask, “Does IDV matter in car insurance?” The answer is a resounding yes. Let us understand why is IDV important in car insurance.
Defines the Maximum Claim Amount
The IDV is the upper limit of what the insurer will pay you in the event of theft or total loss. If your car’s IDV is ₹7,00,000, that’s the most you can receive for a claim, no matter how expensive the repairs or how new your car feels.
Sets the Basis for Claim Settlement
Even in partial loss scenarios (like an accident requiring major repairs), IDV helps determine the claim amount. Insurers ensure that the total payout never exceeds the declared IDV.
Directly Impacts the Insurance Premium
Here’s the balancing act:
- Higher IDV Higher premium but better claim coverage.
- Lower IDV Lower premium, but risk of under-compensation.
For instance, if two car owners have identical vehicles but one sets an IDV of ₹8 lakh and the other sets ₹6 lakh, the first person will pay a higher premium but also enjoy stronger protection in case of loss. IDV is one of the key factors affecting car insurance premiums.
Ensures Adequate Coverage Against Total Loss or Theft
The most considerable risk for a car owner is theft or a situation where the car is destroyed. In these cases, a higher IDV ensures you can replace your vehicle without a significant financial burden.
Helps Maintain Financial Security for Car Owners
Your car is not just a vehicle—it’s an asset. A well-chosen IDV ensures that your asset’s value is protected, keeping your long-term financial security intact.
Plays a Role in the Resale Value of the Vehicle
When you sell your car, buyers often look at its insured value as a benchmark of worth. A higher IDV in car insurance can indirectly improve your resale negotiations.
Affects Policy Renewal and Portability Decisions
At the time of renewal or while switching to another insurer (portability), IDV is re-evaluated. If you consistently choose a lower IDV, your car’s value may appear significantly undervalued, reducing your leverage.
Influences Add-on Covers Linked to IDV
Specific add-ons, like zero depreciation cover or return to invoice cover, are linked to your IDV. If the IDV is set too low, the effectiveness of these add-ons reduces.
The above reason points out how important is IDV for car insurance.
Risks of Incorrect IDV Selection
Setting the right Insured Declared Value (IDV) is crucial because it directly affects both your car insurance premium and the claim settlement amount in case of theft or total loss. Many car owners either choose a very high IDV, thinking it will give them greater protection or opt for a lower IDV to reduce premium costs.
However, both approaches come with significant risks that can impact your finances in the long run.
Drawbacks of a Very High IDV
- Higher Premiums: An inflated IDV will increase your annual premium unnecessarily, leading to additional expenses without offering proportionate benefits.
- Insurer Resistance : Insurance companies generally won’t approve an IDV that goes beyond the market value of the car. Even if accepted, claims may still be settled at the fair market value, making the higher premium pointless.
- Reduced Cost Efficiency : For older vehicles, paying a high premium for a higher IDV rarely makes financial sense. The eventual resale value of the car may not justify the added cost.
Finding the Right Balance
The key lies in striking a balance between affordability and adequate protection. Setting an IDV too low may save you money on premiums, but it also means receiving a smaller payout during a claim, which could leave you underinsured.
On the other hand, overvaluing the car adds unnecessary cost without delivering higher claim settlements. The ideal strategy is to aim for a market-appropriate IDV—one that reflects your car’s true resale value, ensures fair compensation, and keeps your premium affordable.
How to Choose the Right IDV for Your Car
Selecting the right Insured Declared Value (IDV) is one of the most critical steps in buying or renewing a car insurance policy. IDV directly impacts both your premium and the compensation you receive in case of theft or total loss.
Many car owners either undervalue or overvalue their car while finalising the IDV, leading to financial disadvantages later. To avoid this, you must approach IDV selection with a clear understanding of depreciation, market trends, and insurer flexibility.
Here are some practical ways to make the right choice:
Referencing the IRDAI Depreciation Table
The Insurance Regulatory and Development Authority of India (IRDAI) issues a standard depreciation table to guide the calculation of IDV. Always refer to these percentages before agreeing to your insurer’s suggested IDV. This ensures your car is neither undervalued (leading to lower claims) nor overpriced (resulting in higher premiums). Knowing these rates helps you make a fair and informed decision.
Using IDV Calculators Online
Most insurers and several third-party websites provide a free IDV calculator for a car. By entering your car’s model, variant, registration year, mileage, and location, you can get an estimated IDV range. These tools are useful for cross-checking the insurer’s proposal and ensuring you are not paying extra for coverage that doesn’t match your car’s actual market value.
Negotiating IDV with Your Insurer
Don’t accept the default IDV blindly. If your car is well-maintained, has lower mileage than average, or is fitted with high-value accessories, you can negotiate for a higher IDV. Similarly, if you want to lower your premium, you can agree to a slightly reduced IDV.
However, remember that this will also reduce the claim amount in the event of a total loss. The key is finding a balance that protects you financially without making your policy unnecessarily expensive.
Conclusion
So, what is the importance of IDV in car insurance? It’s the cornerstone of your policy that defines claim limits, affects premiums, influences add-ons, and secures your financial safety.
- A higher IDV means stronger protection, especially in theft or total loss cases.
- A lower IDV might save money upfront but can leave you financially vulnerable.
When choosing the best motor insurance, always pay close attention to the IDV offered. Use the online IDV calculator for a car, check the IRDAI depreciation guidelines, and negotiate with your insurer if needed.
At the end of the day, your IDV value of the car is not just a number—it’s your safety net against unexpected risks. Choose wisely, and ensure your types of car insurance coverage truly protect your vehicle’s worth.
FAQ
Generally, IDV can only be updated at the time of renewal, not mid-policy.
For vehicles over 5 years old, IDV is decided mutually between you and the insurer. Vintage cars may require valuation by an automobile expert.
Yes, factory-fitted accessories are included in IDV. Additional accessories (like alloy wheels or music systems) can be added to the IDV at an extra premium.
If repair costs exceed IDV, the insurer declares the car a total loss and pays you the IDV amount.
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