Purchasing vehicle insurance is a crucial decision that every car owner needs to make. It provides financial protection in case of damage, loss, or theft of the insured vehicle. One of the essential components of vehicle insurance is the Insured Declared Value (IDV). IDV is the maximum amount of money that an insurance company will pay to the policyholder in case of theft or total loss of the insured vehicle. It is important to understand how IDV is calculated as it directly affects the premium amount and the amount of money that the policyholder will receive in case of a claim. In this article, we will discuss in detail how IDV is calculated in vehicle insurance.
How is IDV calculated in vehicle insurance?
IDV is calculated based on the
current market value of the insured vehicle. It is the sum insured amount that
the policyholder will receive in case of theft or total loss of the vehicle.
The calculation of IDV is essential as it determines the premium amount that
the policyholder has to pay. The higher the IDV, the higher will be the premium
amount.
The calculation of IDV involves the following formula:
IDV = Manufacturer's Listed
Selling Price - Depreciation
The manufacturer's listed selling
price is the price at which the vehicle was initially sold. Depreciation refers
to the decrease in the value of the vehicle due to wear and tear, aging, and
other factors. The depreciation rate varies depending on the age of the
vehicle. The IDV of a new vehicle is calculated at the manufacturer's listed
selling price. However, as the vehicle ages, the IDV decreases due to
depreciation.
The depreciation rates for the
calculation of IDV are as follows:
Age of the vehicle Depreciation
rate
- 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%
Note: For vehicles older than 5
years, the IDV is mutually agreed upon between the policyholder and the insurance
company.
Factors affecting IDV
The following are the factors
that affect the calculation of IDV:
- Age of the vehicle:
As mentioned earlier, the age of the vehicle
affects the calculation of IDV. The older the vehicle, the higher the
depreciation rate and the lower the IDV.
- Make and model of the vehicle:
The make and
model of the vehicle also affect the calculation of IDV. The IDV of a high-end
car will be higher than that of a mid-range car due to the difference in the
market value.
- Geographical location:
The location
where the vehicle is registered also affects the calculation of IDV. The IDV of
a vehicle registered in a metro city will be higher than that of a vehicle
registered in a rural area due to the difference in the market value.
- Modifications and accessories:
Any
modifications or accessories added to the vehicle after purchase may also
affect the calculation of IDV. If the modifications or accessories increase the
market value of the vehicle, then the IDV will be higher.
- Insurance company's policy:
Different
insurance companies may have different policies regarding the calculation of
IDV. It is important to read the policy document carefully before purchasing
vehicle insurance.
FAQs
What is the importance of IDV in vehicle insurance?
IDV is the maximum amount of
money that an insurance company will pay to the policyholder in case of theft
or total loss of the insured vehicle. It is an important component of vehicle
insurance as it determines the premium amount that the policyholder has to pay.
The higher the IDV, the higher will be the premium amount. Understanding how
IDV is calculated is crucial for policyholders to make an informed decision
while purchasing vehicle insurance.
Can the policyholder choose the IDV?
For vehicles older than 5 years,
the IDV is mutually agreed between the policyholder and the insurance company.
However, for vehicles less than 5 years old, the IDV is calculated based on the
manufacturer's listed selling price and depreciation rates. The policyholder
cannot choose the IDV for such vehicles.
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