What is IDV in motor Insurance?

IDV; Insured declare value

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Pic credit- mintwise.com

Insured declare value is the maximum amount which an insured can get from insurer at the time of claim.

Insured declare value can be calculated by the following equation;

IDV = Ex-showroom price - depreciation

Now, the question is what is depreciation?

Normal wear and tear is known as depreciation. In simple words every asset has a value which starts decreasing immediately after the asset comes out from showroom. The depreciation increases with the age of the asset. As the value of asset decreases per day with the using of asset, the depreciation increases means depreciation is inversely proportional to the age of asset.

This is how depreciation is calculated.

       Age.                                    Depreciation.   

      Below 6 months.                          5% .           

      6 months - 1 year.                       15% .         

      1 year - 2 year.                             20%.          

      2 year - 3 year.                             30%.          

      3 year - 4 year.                             40% .         

      Above 4 years .                            50%.          

Depreciation is not increases above 50%

Let's take an example.

Suppose, The age of the vehicle is 3 years.

And , the ex-showroom price is 5.5 lakhs

Now, we know that

IDV = Ex-showroom price - depreciation

So next will be the 4th insurance of the vehicle. So, the depreciation will be 40%.

Now, IDV = 550000 - 40%

                  = 330000

So, the IDV will be 3.3 lakhs.

Note ; IDV is not the present value but it is the value that you will get in the case of theft or Constructive total loss of vehicle during the policy duration.

But, some customers have issues with the IDV like why the IDV is too low or some customers want to decrease their IDV so that they have to pay less premium. In that case insurance companies gives a range of IDV. Within the range you can adjust your vehicle IDV according to you.

But I will highly recommend you to not decrease your asset IDV. If you do so you can face lakhs of loss because you have already decreased the IDV for paying less premium.