IDV in car Insurance explained: How It affects your premium

When buying or renewing car insurance, the premium is not the only number worth checking. IDV in car insurance can influence both the cost of own-damage cover and the financial protection available in certain major claims.

IDV, or Insured Declared Value, broadly represents the vehicle's insured value for own-damage purposes. It usually changes as the car ages because depreciation is taken into account.

Choosing an IDV simply because it gives you the lowest premium can therefore be misleading. A better approach is to understand how the value is determined and compare it with the car's current value and the policy's coverage.

What is IDV in car insurance?

IDV stands for Insured Declared Value. It is the value assigned to the insured vehicle for own-damage coverage, subject to the policy terms.

IDV becomes particularly important when a vehicle is stolen or declared a total loss or constructive total loss. It does not mean that every claim is settled at the IDV.

For example, repairable accident damage is generally assessed based on the applicable repair costs, deductibles, depreciation and policy conditions. IDV becomes more relevant when the vehicle is considered a total or constructive total loss.

Under traditional motor policy wordings hosted by IRDAI, a vehicle can be treated as a constructive total loss when the cost of retrieval and/or repairs exceeds 75% of its IDV. The exact conditions should always be checked in the applicable policy wording.

How is IDV calculated?

IDV is generally based on the manufacturer's listed selling price of the vehicle at the beginning of the policy period, adjusted for applicable depreciation.

A simplified calculation is:

IDV = vehicle's applicable value − depreciation

The actual calculation can vary based on the policy wording, vehicle age and other applicable factors.

For example, if a vehicle's relevant value is ₹10 lakh and an applicable depreciation rate is 20%, the resulting value would be approximately ₹8 lakh.

This is only an illustration. Policyholders should use the IDV offered in the policy quote and check the applicable terms rather than calculating it independently.

How does depreciation affect IDV?

Depreciation reflects the reduction in a vehicle's value as it gets older. As a result, the IDV generally decreases at renewal.

An IRDAI-hosted motor policy wording provides the following age-based schedule for fixing IDV:

Important: This is an example from an IRDAI-hosted policy wording, not a universal current schedule for every car insurance policy. The applicable policy document should be treated as the final reference.

For vehicles beyond five years old or discontinued models, the applicable IDV may be determined differently depending on the policy terms.

How does IDV affect your car insurance premium?

IDV is one of the factors that can influence the own-damage premium.

In simple terms:

Higher IDV → potentially higher own-damage premium

Lower IDV → potentially lower own-damage premium

However, the premium is not determined by IDV alone. Other factors can include the vehicle, location, age, claims history, coverage selected, deductibles and applicable discounts or loadings.

This means two cars with similar IDVs may not necessarily have identical premiums.

Example

Consider a car with two possible IDVs:

The actual premium difference depends on the insurer and policy structure. The lowest IDV should not automatically be considered the best option.

How does IDV affect claims?

IDV matters most when a vehicle suffers a major loss.

Consider this example:

• Car's IDV: ₹7 lakh
• Vehicle stolen: Yes

If the claim is admissible and the policy terms provide settlement based on IDV, the applicable claim amount would be determined according to the policy conditions and applicable deductions.

Now consider a different situation:

• Car's IDV: ₹7 lakh
• Repair estimate: ₹1.5 lakh

The claim would not simply be limited to ₹7 lakh. The repair claim would be assessed according to the policy's terms, including applicable deductibles, depreciation and exclusions.

This distinction is important because IDV is not a guaranteed payout for every accident claim.

What is the ideal IDV for your car?

There is no single IDV that works for every car. The ideal IDV should reasonably represent the vehicle's current insured value under the applicable policy.

When comparing options, look at:

• Current age of the vehicle
• Model and variant
• Applicable depreciation
• Current market value
• IDV offered by different insurers
• Premium difference
• Deductibles
• Coverage and exclusions

A significantly lower IDV may save money upfront but could reduce financial protection in a major loss.

How to choose the right IDV

Use this simple checklist before buying or renewing:

If you are purchasing insurance for a new vehicle, a new car insurance price calculator can also help you estimate the premium while comparing available coverage and IDV options.

Common IDV mistakes to avoid

Choosing the lowest IDV

A lower IDV can reduce the premium but may also reduce protection during a total loss or theft claim.

Comparing only premiums

A ₹500 difference in premium may not be meaningful if one policy has a substantially different IDV, deductible or coverage.

Ignoring IDV during renewal

Do not assume the renewal IDV is automatically appropriate. Review it every year.

Confusing IDV with resale value

IDV is an insurance valuation. It should not automatically be treated as the exact price you would receive by selling the vehicle.

Final takeaway

Understanding IDV in car insurance helps you evaluate a policy beyond its premium. IDV generally reflects the insured value of the vehicle after applicable depreciation and can become particularly important in theft and total-loss claims.

The objective should not be to choose the highest or lowest IDV. Instead, compare the IDV with your vehicle's age and value, then consider the premium, deductibles, coverage and exclusions together.
 

References:

•  https://irdai.gov.in/web/policy-holder/motor-insurance 
•  https://old.irdai.gov.in/ADMINCMS/cms/Uploadedfiles/NLP1516/52.pdf 

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ARN: Zuno/Blog/DM/IDV in car insurance explained: How it affects your premium/08/26/02