What Are the Myths That You Shouldn’t Believe About IDV in Motor Insurance?
Registration, insurance, PUC certificate and your driving license are four critical documents you need always have when driving a vehicle. While registration, PUC and the driving license are adhered diligently, it is the insurance policy the is often overlooked. However, the legal requirement by the Motor Vehicles Act lays down the need to keep your vehicle insured.
When buying a vehicle insurance online, there are different plans to choose from. Some of these offer a limited coverage like a third-party policy, whereas a comprehensive policy provides an all-round protection. Based on your requirement, you can make the choice of policy. In this process, it is essential to understand the jargons you might stumble upon for a thorough understanding of the policy. One such terminology is the insured declared value or IDV.
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What is the meaning of IDV?
Insured declared value or IDV is the maximum amount the insurance company pays during a situation where the insured vehicle is damaged beyond repair. Such a situation is termed as total loss. Further, in situations of constructive total loss or theft, such IDV comes into the pictures. When understanding this term, it is important to you do not fall prey to the misconceptions surrounding IDV. Let’s look at five such misconceptions:
Maximum claim during a policy tenure is capped at the amount of IDV
While IDV is the maximum amount that the insurance company pays, it isn’t the maximum amount that you can claim. In reality, you can make unlimited claims during a policy period and the insurer shall pay for each such claim. The caveat is each of this claim amount needs to be lower than the IDV. If any claim exceeds 75% of such IDV, it is considered a situation of total loss and the entire IDV is compensated. *
Only the insurance company determines the IDV
The truth is far different than this myth surrounding IDV. The regulator, Insurance Regulatory and Development Authority of India (IRDAI), in fact, determines the depreciation rates for your vehicle. These depreciation rates are then deducted from the selling price to arrive at the IDV. You can visit the official website of IRDAI for further details. However, this is only the case to determine the IDV for a vehicle up to five years of age. After 5 years, the insurance company and you, the policyholder, are free to determine the IDV on mutual basis. *
IDV is the resale price of your vehicle
IDV equates to the resale price is the most grossly stated fact. In reality, IDV is lower than the resale value since it factors in the element of depreciation impacting the premium calculation. Thus, IDV is not synonymous to the resale price of your vehicle, but only its current valuation. *
Lowering your IDV is smart way to reduce the premium amount
Declaring a lower IDV is never a smart move. Since it is the maximum amount that your insurer pays in a situation of total loss or theft, lowering the IDV may result in a financial loss. Thus, instead of lowering the IDV, there are different methods to limit the premium like increasing the deductible component or making use of the NCB facility. *
Higher IDV results in a higher resale value
It is not advisable to tamper the IDV. Neither decreasing nor increasing as both impact the premium. While what happens when you lower the IDV is discussed above, increasing the IDV increases the risk that your insurance company has to cover and thus negatively impacts the premium. The resale value has no correlation to the IDV that your insurance company pays and hence you must not rely on such misconception. To understand the impact of IDV on your premium, you can use a motor insurance calculator. *
* Standard T&C Apply
Make sure to thoroughly understand IDV and its impact on the premium. In addition, verify the insured declared value at each vehicle insurance renewal to balance the financial coverage and the premium amount of your policy. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.