What is IDV (Insured Declared Value)?

IDV full form in insurance :  Insured Declared Value. It is a crucial term used primarily in Vehicle Insurance. Here’s a detailed explanation:

What is Insured Declared Value?

The Insured Declared Value (IDV) is the maximum sum assured that an insurance company will pay in the event of a total loss of the insured vehicle due to theft, accident, or any other reason. It represents the current market value of the vehicle at the time of policy issuance.

How is IDV Calculated?

Depreciation: IDV is calculated by deducting the depreciation value of the vehicle from its manufacturer’s listed selling price.

Formula : 
IDV = {Manufacturer's Selling Price} - {Depreciation}

Importance of IDV:

1. Claim Settlement: In case of a total loss, the IDV is the amount that the insurer will pay to the policyholder. Therefore, it is essential to declare an accurate IDV to ensure adequate coverage.
2. Premium Calculation: The IDV directly affects the premium amount. A higher IDV usually results in a higher premium, while a lower IDV can reduce the premium cost.
3. Market Value Reflection: IDV reflects the current market value of the vehicle, ensuring that the policyholder receives a fair amount in case of a claim.

Factors Affecting IDV:

• Age of the Vehicle: Older vehicles have a higher depreciation rate, which lowers the IDV.
• Condition of the Vehicle: The physical condition and maintenance of the vehicle can also influence its market value.
• Model and Make: Different models and makes have varying resale values, which can affect the IDV.

Why is IDV different for different Insurance companies?

The depreciation rates are typically predefined by the insurance companies based on the age of the vehicle. Since the depreciation rates are different for different insurers, The IDV differs.

Why is a Range in IDV?

The range in Insured Declared Value (IDV) exists because insurance companies allow a certain degree of flexibility for vehicle owners to adjust the IDV within a predefined limit, typically up to 15% higher or lower than the base value calculated using the formula. This flexibility is provided to balance insurance premiums and coverage adequacy

Reasons for having a range in IDV?

1. Premium Adjustment: A higher IDV results in higher premiums, while a lower IDV reduces premiums. This allows policyholders to choose an IDV that aligns with their budget.
2. Adequate Coverage: Adjusting the IDV ensures that the insured amount is suitable for the vehicle's market value, providing sufficient compensation in case of theft or total loss.
3. Depreciation and Market Value: The IDV reflects the depreciated value of the vehicle and varies based on factors like age, model, and location of purchase. This range accommodates these variations.
4. Risk Sharing: Lowering the IDV below market value shifts some financial risk to the policyholder, while increasing it provides better coverage but at a higher cost.

This range enables policyholders to strike a balance between affordable premiums and adequate protection for their vehicles.

Should you choose Lower (Min) or Higher (Max) IDV?

It's logical to opt for the maximum Insured Declared Value (IDV) when purchasing a Car insurance or Bike Insurance online, but higher the IDV higher is the Insurance premium. Unless you're facing financial constraints, it's advisable to pay the slight premium increase. This small upfront cost can safeguard you against unexpected repair or replacement expenses, as modern cars often feature complex components that can be extremely costly to fix or replace.

Conclusion:

Understanding IDV is essential for vehicle owners to ensure they have adequate insurance coverage. It is advisable to review and update the IDV regularly, especially if there are significant changes in the vehicle's condition or market value. Always consult with your insurance provider to determine the appropriate IDV for your vehicle.