Insured Declared Value (IDV) in Car Insurance
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Overview of IDV in Car Insurance
Insured Declared Value is the most important term in this context. it plays a critical role in determining your premium and the amount you can claim as compensation.
A valid car insurance policy is mandatory for all vehicle owners in the UAE. The concept of car insurance is simple and straightforward. It protects owners against losses, damages, and liabilities that may arise due to their vehicles.
However, the technical jargon associated with car insurance can be complex and confusing for most people. Proper knowledge is essential to ensure you buy the right policy and avoid unnecessary hassles later.
Note: Insurance firms in the United Arab Emirates refer to the car value rather than IDV.
What is the Insured Declared Value (IDV) in Car Insurance?
The Insured Declared Value (or IDV) represents the maximum amount that is payable as compensation by the insurance company when a claim is filed for theft or complete damage to the vehicle.
The insurer does not offer compensation based on the original purchase price of your car. This is primarily because the value depreciates over time due to age, condition, and technological changes. So, IDV in car insurance means the current market price of the vehicle after accounting for depreciation.
How is IDV Calculated in Motor Insurance?
Situation 1: With Accessories
IDV = (Vehicle’s Ex-Showroom Price - Depreciation) + (Price of Accessories - Depreciation on Accessories)
Situation 2: Without Accessories
IDV = Vehicle’s Ex-Showroom Price - Depreciation
Car Depreciation Rate Table for IDV Calculation
Age of the Vehicle
Depreciation Rate
3 months
5%
6 months
10%
9 months
15%
12 months
20%
After 1 year
20%
Benefits of IDV in Car Insurance
The IDV decides the amount of compensation payable by the insurer to the policyholder if the vehicle is stolen or damaged beyond repairs in an accident or a disaster. The compensation is higher if the IDV is higher.
The IDV also provides a basis for calculating the premium payable on car insurance. The premium is higher if the IDV is higher.
Factors Affecting the IDV of Car Insurance
Age of the Vehicle
The depreciation charge rises with the age of the vehicle. Older vehicles have lower IDV as they suffer higher depreciation. IDV is relatively higher for newer vehicles
Car Type & Model
Luxury cars and other high-end vehicles are more expensive and hence have higher IDV as compared to regular cars
Location
The vehicle’s ex-showroom price varies across cities in the same country. The IDV is higher if the cost price of the car is higher on account of the place of booking.
Accessories
The accessories fitted to the vehicle such as the sound system, dash camera, GPS indicator, etc., also get depreciated over the years and affect the car’s IDV.
When Should You Have A High IDV For Your Car?
Higher IDV in car insurance ensures a higher compensation payout when you file a claim. Higher IDV is beneficial for newer cars as the depreciation tends to be low during the initial years. Maintaining a higher IDV is also recommended for luxury cars and cars with spare parts that are expensive or difficult to replace.
Although higher IDV guarantees higher compensation relief, please note that you will also be required to pay a higher premium. Ideally, the IDV should be close to the current market price of your vehicle.
Relationship Between a Car’s IDV and Policy Premium
The car insurance premium is computed based on the insured declared value (IDV). A higher IDV essentially denotes a higher risk to an insurance company. The insurer would be required to pay a higher amount in the event of theft or damage to the vehicle. Hence, a higher IDV translates to a higher premium for car owners. Consequently, the premium will be lower if the IDV is lower.
Role of IDV in the Event of a Claim
The IDV in insurance represents the maximum amount payable as compensation in the event of a claim by a policyholder. The reimbursement of expenses toward the repairs and replacement of the vehicle’s parts is also based on its IDV.
If your car is stolen or damaged beyond repairs due to an accident or a disaster, you will receive an amount equal to the vehicle’s IDV.
Myths and Facts About IDV In Car Insurance
There are several myths surrounding the car insurance IDV value. It is important to bust them for the benefit of policyholders.
Myth 1 :
A lower IDV is always beneficial as it helps me save a considerable amount on premiums
Fact :
This is not always true. Although a lower IDV helps you save on premiums, you will get a lower compensation in the event of a claim.
Myth 2 :
The IDV is equal to the current market price of the vehicle.
Fact :
Not necessarily. The IDV primarily considers depreciation for calculation. The car’s current market price depends on several other factors, like age, model, brand, accessories, condition, and accidental history.
Myth 3 :
The IDV set by the insurance company cannot be changed by the policyholder.
Fact :
No. It is possible for policyholders to change the IDV declared by the insurer. They can examine the current market price of the vehicle or the cost of a similar brand to arrive at an appropriate sum for IDV. Most insurers are open to negotiations with policyholders to arrive at the IDV.
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Frequently Asked Questions on on IDV In Car Insurance
What is the IDV on a third-party car insurance policy?
The IDV is applicable only in the case of a comprehensive car insurance policy that covers own vehicle damages. It is not relevant for a third-party car insurance policy.
When is the IDV value in car insurance required to be declared?
The IDV value in car insurance should be declared at the time of purchasing the policy and every year upon renewing the car insurance policy. As the car’s market value decreases every year, the IDV also decreases.
Is compensation paid by the insurance company equal to the IDV?
IDV is the maximum amount that you can claim under your car insurance policy. You get an amount equal to the IDV if the car is stolen and declared untraceable or if it is damaged beyond repairs.
Is it beneficial for policyholders to declare a higher IDV for their vehicles?
A higher IDV in insurance results in relatively higher premiums. However, it may be beneficial to have a higher IDV for new cars, luxury cars, or if the spare parts are expensive.
Disclaimer: The information mentioned here is gathered from sources deemed to be reliable & trustworthy. Prominent Insurance Brokers does not promote or recommend any product or service.