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3 Reasons Why a High Vehicle IDV Is Beneficial

Team AckoApr 30, 2024

As per the Motor Vehicles Act, all vehicles must be covered by at least a 3rd-party motor vehicle insurance to operate legally anywhere in the country. You will be fined heavily if you are found driving without valid insurance. Though everyone knows that owning a motor vehicle insurance policy is mandatory, not many fully understand the fine print that comes with it. The Insured Declared Value or IDV, a part of a comprehensive cover, is one such component usually overlooked when purchasing a motor vehicle insurance policy.

Contents

Types of Motor Vehicle Insurance
What is Insured Declared Value (IDV)?
3 Benefits of a High Vehicle IDV
How Do I Calculate the IDV for my Vehicle?
Conclusion
Frequently Asked Questions

Types of Motor Vehicle Insurance

Before we go ahead with how a higher Insured Declared Value will benefit you, let's first understand the two basic types of motor vehicle insurance policies available in India.

Third-Party Insurance: This is the basic legal requirement to operate a vehicle in the country. As the name suggests, third-party insurance will protect its owner from any financial liabilities that may arise if you damage a third party. The third party, in this instance, could mean another person, property, or damage to their vehicle. Most people simply go with this policy either because they are not aware of the existence of comprehensive insurance, or because of the minimal premiums in this policy.
Comprehensive car insurance: This will not only cover any damage to a third party but also the owner in cases of damage or loss caused to the vehicle. You are also covered if your vehicle gets stolen or damaged due to fire or even natural disasters. The biggest advantage of comprehensive insurance over third-party insurance, is personal accident cover for the policy owner. Even though you pay a higher premium to avail a comprehensive cover, the benefits outweigh the monetary investment in the policy several times over.

What is Insured Declared Value (IDV)?

Insured Declared Value is the value derived after subtracting the depreciation factor from the listed price per the vehicle's manufacturer, i.e. the car's ex-showroom price. In short, it is the maximum compensation you are liable to receive if your vehicle is written off after an accident or stolen. So, if you own an expensive vehicle or if your vehicle is essential to your business or day-to-day living, a high Insured Declared Value will work in your favour if something catastrophic happens.

You can increase or decrease your IDV by talking to your insurance provider based on your financial situation. Increasing your IDV will increase your premiums marginally and vice versa. It is important to know that the premiums to cover yourself are usually 2-3% of the IDV, so you will not see a drastic difference in premiums if you choose to lower your IDV. Thus, keeping your IDV as high as possible will ensure maximum financial security.

It is important to note that IDV plays a role only when you own Comprehensive car insurance. Holders of third-party insurance do not benefit from IDV in any way.

3 Benefits of a High Vehicle IDV

Let's look at three instances with a higher IDV that will benefit you greatly.

1. In Case of a Serious Accident

Minor incidents such as a broken tail light or rearview mirror can easily be fixed. However, in the case of a serious accident where the vehicle ends up totaled, sometimes, the cost to repair the vehicle can exceed your budget.

If you have a high IDV, you will be compensated substantially by your insurers, which can greatly help you buy a replacement vehicle. Customers with a low IDV will have to shell out a significant amount from their own pockets to replace or cover the vehicle damage.

2. In Case Your Vehicle Gets Stolen

In many cases, expert or safe drivers tend to lower their IDV as they know that the chances of them getting involved in a serious crash are minuscule. What they don't consider is that your vehicle could just as likely be stolen. It's not a fatal crash, but the result is the same, you are left without a vehicle.

Again, a higher IDV will ensure you are better compensated for getting a replacement vehicle. It does not matter if you are rich and drive the best car or even if you drive a two-wheeler, a loss is a loss, and it's best to be prepared beforehand.

3. For Security

A vehicle is a necessity in today's day and age. Except for a handful of very wealthy individuals, buying a vehicle is a significant investment, especially for the middle-class of the country. Comprehensive insurance with a high IDV will give you considerable compensation, mentally and monetarily, in case of any unforeseen mishap.

Consider your financial situation and the age of your vehicle to determine the perfect balance between the premiums you can afford, and the maximum compensation you can get for the same.

How Do I Calculate the IDV for my Vehicle?

IDV is derived after subtracting the depreciation factor from the listed price per the vehicle's manufacturer. The depreciation value percentage, based on the age of the vehicle, has been fixed by the IRDAI (Insurance Regulatory and Development Authority), which has to be followed by all insurers operating in India.

Age of the Vehicle	Percentage of Depreciation
Up To 6 months	5%
6 months to less than a 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%

Suppose the vehicle is older than 5 years. In that case, the IDV is based on a mutual agreement between the insured and the insurance company, based on the make and model of the vehicle, availability of its parts and its current condition. After 5 years, it is best to set your IDV based on the vehicle's current market value.

You can also calculate IDV directly from ACKO's IDV calculator.

Conclusion

A third-party motor vehicle insurance is enough to drive legally in any corner of the country. However, going the extra mile and getting comprehensive cover with a high Insured Declared Value (IDV) will ensure that you are taken care of financially in case of any unforeseen circumstances.

Frequently Asked Questions

Here are some of the frequently asked questions regarding benefits of higher IDV value

Q. Can I apply for an IDV claim to get my vehicle repaired?

The policyholder cannot apply for an IDV claim if the vehicle is repairable. You can file a claim for the IDV, only if your vehicle is beyond repair or if it has been stolen.

Q. Does the IDV amount have to be used to replace the same make and model of the vehicle that was crashed or stolen?

The IDV amount received after a successful claim can be utilised in any way you see fit. You can buy the same vehicle or look for another make and model. The decision is entirely up to you.

Q. How much extra premium would I have to pay for a comprehensive cover to benefit from the IDV?

The IDV only comes into effect if you opt for the Own-Damage or comprehensive cover, over and above the third-party insurance. The premiums are generally 2-3% of the IDV.

For example, if the IDV of your vehicle is 5 lakhs, you will be paying an additional premium of Rs. 10000-15000 per annum, over and above the premium you pay for the third-party insurance.

Q. How is a comprehensive car insurance claim settled?

Once you have filed a claim against your policy, a surveyor will be tasked with assessing the damage and an estimated repair cost. If your claim is genuine and has been verified, the costs will be reimbursed to your bank account. If you have gone ahead with the option of a cashless settlement with the garage, the insurer will pay the garage directly.