What is IDV and how does it affect auto insurance -Vivek Chaturvedi



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Despite relaxed regulations and employees returning to the office for work, we are seeing fewer vehicles on the road compared to the pre-COVID era. This is mainly due to people migrating to their hometowns and a few companies that still follow work from home standards. While this is the case, the auto industry started to see some momentum towards the end of 2020 due to the holiday season. This has directly resulted in an increase in the demand for auto insurance.

When looking for insurance for a new car or renewing auto insurance, there are several options available with lower and higher premiums. Usually, a customer would prefer to go with products that are available at lower cost, but in the case of auto insurance, a lower premium can come at the cost of a lower insured value (IDV) for your vehicle.

So what is a declared insured value or IDV of a vehicle? IDV reflects the market value of the car. IDV also determines the maximum claim amount that an insurance company will pay for any damage caused. The IDV value is generally the price paid for the vehicle less depreciation over the years.

The IDV is one of the most important elements that an insurance company considers when calculating the premium. It is calculated on the basis of IRDAI regulations for the first five years of the car. It is calculated on the basis of depreciation, and it is often correlated with the current value of the car. Thus, IDV and the auto insurance premium are linked. For example, if the car’s IDV is higher, the car insurance premium goes up. Likewise, as the vehicle ages and the IDV depreciates, the premium also decreases. Here are the factors that determine the vehicle’s IDV:

  • Age of the car: One of the main factors that determine the car’s IDV is the age of the car, as the IDV represents the current market value of the car. This means that the older the car, the lower the IDV and vice versa.

  • Vehicle make and model: The car parts and expenses depend on the vehicle model and make and hence it will affect the car IDV. For example, the IDV for a premium car will always be higher than for a utility vehicle or a sedan.

  • Registration Details: The IDV of a car registered in a metro may be lower than that of a level II city. Therefore, the city of registration has an impact on its declared insured value.

  • Depreciation: The standard depreciation of the vehicle from the day of purchase is calculated based on the Indian Automobile Tariff. The percentage of its depreciation increases every year. As parts of the vehicle depreciate, this also lowers the IDV. As the vehicle ages and the IDV depreciates, your premium also goes down.

While it is important to check the insured declared value of the vehicle when purchasing insurance, it is also important to know how IDV will benefit us when making a claim. When applying for insurance, compensation is determined based on the value of your car. For example, the cost of repair or replacement will also be based on the value of the car. Also, in the event of theft or irreparable damage, the compensation that will be received for the loss will be the amount equal to the IDV. Therefore, it is important to make sure that the mentioned IDV reflects the value of the car.

Low insurance premiums can be tempting, but in reality, low premiums can be the result of the low IDV stated in the policy. Especially in the case of new cars, high end cars, cars registered in high risk locations, the expenses related to any risk may be higher. Likewise, in the case of older vehicles that are more than 5 years old, cars that are little used, or people who prefer to sell the car soon after purchase, it is better to go for a lower IDV as the associated risk is comparatively less. . Therefore, it is always advisable not to go for a higher or lower IDV but the correct IDV.

IDV also plays an important role in the event that one wishes to sell the car. In addition to factors like usage, past experience with auto insurance claims, etc., a vehicle with a higher IDV will get a higher price. The going rate of the car is usually the declared insured value. Hence, it is one of the most critical factors that determine the value of the car upon resale and the fair amount of compensation for the loss against the claim made. Simply put, the insured declared value is the foundation of auto insurance as it not only determines the premium of the vehicle but also the market value of the car.

Disclaimer: The opinions expressed in the above article are those of the authors and do not necessarily represent or reflect the opinions of this publisher. Unless otherwise indicated, the author writes in his personal capacity. They are not intended and should not be taken to represent any official ideas, attitudes or policies of any agency or institution.


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