While purchasing a car insurance policy is mandatory by law under the Motor Vehicles Act, it is also essential to keep your vehicle protected in case of damage due to accidents. In simple terms, having car insurance ensures that if something goes wrong, in case of damages, loss, or unexpected trouble, the repair expenses incurred will be borne by the insurer.
Even though there is an option of buying third party car insurance, know that the policy comes with limited coverage. Therefore, it is best to have a trustworthy comprehensive car insurance policy as it offers extensive coverage.
When buying a comprehensive car insurance policy (such as Acko Car Insurance), you need to pay attention to several factors, such as the premium, features, benefits, claim settlement ratio of the insurer, exclusions, Insured Declared Value (IDV), etc. But among these, the most imperative factor is setting the right Insured Declared Value or IDV.
What is the Insured Declared Value (IDV)?
The Insured Declared Value of your car is the maximum compensation given by the insurer for your insured vehicle. Ideally, it is the current market value of the said motor vehicle.
The IDV forms a significant portion of the premium. It determines the maximum settlement you receive from the insurer along with the car insurance premium rate. Therefore, it is essential to calculate the right IDV for your car. So, while the other factors are imperative, neglecting IDV can have adverse repercussions when raising claims.
How is the IDV calculated?
The IDV is based on the on-going showroom price/market price of the vehicle if you have recently purchased a new car. For old or second-hand cars, the IDV is determined after calculating the depreciation rate of the vehicle. In this computation, the insurance and registration costs are excluded.
The formula used to calculate IDV is –
IDV = Ex-showroom price of the car + Cost of accessories – Depreciation value as per (IRDAI)
We understand that calculating IDV manually is complex, especially when it affects the policy cost. In this case, you can use the car insurance calculator tool to determine the premium charged on your desired car insurance coverage and add-on benefits.
Why is it Important to Set the Right IDV while Renewing Car Insurance?
Since the IDV of your car impacts the car insurance price and the claim settlement amount in case of damage, it is crucial to set the right IDV when renewing the policy.
Let’s say you suppressed the IDV to pay lower premiums. Unfortunately, your car gets stolen in the future. In such times, the settlement you receive will be equivalent to the IDV, which will be lower compared to the loss you incur. Hence, it is essential to set the right IDV to avoid such a financial loss later in the future.
