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If you are buying or renewing your car insurance policy, one crucial factor to keep in mind is the Insured Declared Value (IDV) of the car. This is because both your coverage and the premium depend on this value. But what is it? What is its relation with premium? Let's delve deeper and find out.

What is IDV?

Insured Declared Value or IDV is the maximum amount the insurance company pledges to give you in case of a total loss to your car in an accident or theft.

Let’s understand this with an example. Let’s say Mr Ravi Shankar owns a comprehensive car insurance policy on his 5-year-old hatchback with an IDV set at Rs 3,00,000. Unfortunately, in an accident, Mr Ravi's car is totalled and is beyond repair. Assuming all the other policy terms are met, Mr Ravi Shankar will get Rs 3,00,000 from the insurance company for his damaged car.

The Relation Between IDV and Insurance Premium

The Insurance premium of the car is affected by IDV only in if you have a Comprehensive car insurance policy or Own damage insurance.

There comprehensive car insurance policy has 2 major components:

• 3rd Party Liability Cover -

This protects against any damage caused to a third party (person or property).

• Own-Damage Cover -

This protects against damage caused to the policyholder's car in case of an accident or any other incident covered in the policy.

While the 3rd party liability cover price is strictly regulated by the IRDAI based on the vehicle's engine capacity, own damage premiums may differ based on various factors. One of the most important factors that impact the own-damage premiums is the IDV of the car.

Higher the IDV, the higher the insurance premium.

So does this mean you should buy an insurance policy with low IDV? The answer is no.

Why Choose High IDV for your Car?

While lowering your IDV can lower your premium, it also lowers your coverage. On the other hand, keeping your coverage on the higher side offers many benefits.

• Higher coverage:

In case of a total loss of your car or if it’s stolen, you can get better compensation for your loss. This can help you recover from your loss.

• Not much impact on the premium:

While the own-damage premium depends on the car's IDV, the impact is not as high as you might think. The own-damage premium typically is 2-4% of the IDV of the car.

• Peace of Mind:

One of the most important reasons you buy an insurance policy is to have peace of mind. With a higher IDV, you are better prepared to handle any loss arising out of an accident or theft of your car.

Choose the Right IDV

While high IDV is recommended, there is no point in keeping it too high. Therefore, the right IDV of the car is calculated as below.

IDV = Car’s ex-showroom price - Depreciation

To make it easier for both the insurance company and the policyholders, IRDAI has stipulated guidelines on the depreciation to be charged based on the car’s age. Here it is.

Vehicle Age Depreciation
< 6 months 5%
6 months-1 Year 10%
1-2 years 15%
2-3 Years 25%
3-4 years 35%
4-5 years 40%
5-10 years 50%

So if the car's ex-showroom price is 500,000 and it is 1+ years old, the correct IDV should be

500,000 - 15% of 500,000 = 4,25,000

Keeping the IDV low can reduce your premium but also lower your coverage. However, going above the maximum IDV isn't a good idea either. Instead, choose the right IDV that provides apt coverage at the right premium. When buying a car insurance plan with Kotak General Insurance, you can talk to our expert and fix your IDV according your vehicle’s age.

Disclaimer: The content provided is for education and informational purpose only, none of the information contained in our blog amounts to any form of opinion or advice. Please go through policy related documents carefully or consult an expert before making any insurance-related decisions.


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