Should I skimp my premium or declare the correct IDV?


Though most people are enthusiastic about buying a new vehicle for convenience, the associated motor insurance clause is a dampener. The Motor Vehicles Act, 1988 mandates every vehicle to be insured under a valid insurance policy. As such, though you shirk away from an all-important life or health insurance policy, you are out of options when it comes to a motor insurance policy. With a heavy heart, you part with your precious money and insure your vehicles under a motor insurance policy. Even then, you try and skimp your premiums. Are there ways to do that?

Actually, there are! By opting for a lower Insured Declared Value (IDV), you can successfully lower the motor insurance premium of your vehicle. But, is choosing a lower IDV wise?

Before understanding the wisdom of choosing a low IDV, let us first understand what IDV is.

What is IDV?

IDV stands for Insured Declared Value and acts as a Sum Assured of your motor insurance policy. IDV is relevant in case of comprehensive motor insurance policies which cover both the third party legal liability as well as any damage suffered by you and your vehicle. IDV is computed as the current market price (excluding registration costs and insurance) of your vehicle less the applicable depreciation. According to the Motor Vehicles Tariff, the rate of depreciation for calculating IDV depends on the age of your car and is as follows:

Age of the car Applicable rate of depreciation
Less than 6 months 5%
6 months to 1 year 15%
1 year to 2 years 20%
2 years to 3 years 30%
3 years to 4 years 40%
4 years to 5 years 50%

The IDV for vehicles above 5years are determined on a mutual agreement between the vehicle owner and the insurance company.

Why is IDV important?

Though the rate of depreciation is stated, most insurance companies have their own computation tools and calculate IDV as per their policies. That is why you would find different IDVs for your same vehicle when you compare motor insurance policies. IDV affects your premium rate. Lower the IDV lower would be your premium and vice versa. As IDV affects the premium rate, most of you tend to skimp on your premiums by declaring or choosing a lower IDV. But, choosing the correct IDV is important because –

  • You get IDV in case of loss or theft of your vehicle

Though you might be a very careful driver and try hard to prevent your vehicle against accidents, you cannot avoid the risk of theft. If your vehicle gets stolen and is untraceable, the insurance company pays the IDV of your policy and settles the claim. Once chosen, the IDV reduces every year. If you have chosen a lower IDV then, when your vehicle is stolen, you get a very low claim settlement from the insurance company. Such a low amount of claim puts a strain on your pockets when you replace your lost vehicle with a new one.

  • You get the IDV in case of total loss of your vehicle

If your vehicle is damaged beyond repairs or if the estimated cost of repairs is more than 70% or 75% of the IDV, it is considered as ConstructiveTotal Loss (CTL). In case of CTL, the IDV, after deducting the wreck value, is paid to you. If you have chosen a lower IDV and your vehicle has suffered a constructive total loss, you would get very little compensation from your motor insurance policy.

Thus, choosing the correct IDV is very important. Though IDV varies across insurers, you can negotiate the IDV with the insurer and settle on an appropriate amount before you buy the policy. Yes, your premiums would increase depending on the IDV but the value of your vehicle would be intact. What is the meaning of saving a few hundred on premium if you would face thousands in loss when your vehicle is stolen or damaged completely?

To choose the correct IDV, compute the estimated IDV yourself depending on the market price of your vehicle and the relevant depreciation. After estimating your IDV, go online, compare between the different motor insurance plans available and choose the one with an IDV nearest to your estimate. Coverfox is an online platform which lets you compare the IDVs of various motor insurance policies before you buy one. So, be wise and don’t skimp your premium. Declare the correct IDV and protect the value of your vehicle.