Should You Increase the Insured Declared Value?

Insured Declared Value (IDV)is the amount guaranteed by the insurer in the event of a theft or total loss of an automobile. This, however, is calculated by the current market value of the vehicle and not its purchase cost. So if your car is 4 years old, its market value will be lesser than its purchase cost (due to depreciation), and hence the IDV will be based off this lesser value.

Why purchase a higher IDV?

The statistic shows that India is not a very safe place to drive where traffic rules are violated all the time. This includes stolen vehicles, and to have a lower IDV puts the owner at a higher risk. A lesser premium would result in a much lesser claim, and that is not what you as an owner would want when it's come to claiming against total damage or theft.

Does it make sense to increase your IDV?

Insurance premiums are usually 2% to 3% of the insured value of that particular year for a car. A common tendency will be to quote a lower IDV so that the premiums applicable will also be lower. However, this will also mean that in case of total loss or theft, you will be compensated with a lower amount than the market value of your car, effectively resulting in a loss for you.

How do you establish what your IDV should be?

The age of the car plays a significant role on IDV. The depreciation factor lowers IDV claim year by year, and so does its premium. Depreciation for a new vehicle is usually 5% within the first 6 months. The 5% is taken into consideration of the showroom cost; this does not include road taxes.

For a car that is more than 5 years old, its price is determined by both parties, that is the insured car owner and the insurance company. But factors of age, condition, availability of parts of the vehicles are taken into consideration. This calculation is also considered during the time of renewal, and it is not necessary that the insurer has to agree with the insurance company on the premium amount. There is scope for debate on its cost, and the insured car owner is within his rights to negotiate what he believes the market value of the car is, by researching on his own.

If the present insurance provider does not allow you to raise the IDV of your vehicle and the user feels it is worth more, then there is always the alternative to change the insurer for a new one. Car owners must keep in mind not being aware the right IDV of the vehicle will result in inadequate compensation.

To summarize

Keep your IDV at par with the market value of the car. This way it will reduce as its age increases. Though your premiums will be higher, you will be relieved in the unfortunate case of total loss or burglary.