How To Derive IDV?

Square Insurance 23 Feb 2022
How To Derive IDV?

If a car is damaged or wrecked, the Insured Declared Value Complete Form of IDV, or IDV, represents the maximum sum assured.

To put it another way, What is IDV, the IDV represents the vehicle’s current value. An insurer will offer an amount equal to the IDV of the car if the car is completely damaged and can no longer be used. The purpose of this article is to dig deeper into IDV and show you how you can find an IDV value of a vehicle using a calculator.

IDV Calculator - What is it?

IDV calculators help determine an IDV Calculation in Car Insurance online for free. To calculate the IDV of the car, several variables are taken into account, including the make, model, variant, the month and year of purchase, and the site of purchase. You can also use an IDV calculator to determine the number of premiums you should pay for your motor insurance plan. The IDV value of a car can be calculated using an IDV calculator.

It is calculated in popular parlance from the ex-showroom price, which is the manufacturer's selling price in popular parlance. To determine the IDV, the insurance company subtracts depreciation from the manufacturer's list price. The insurance and registration costs aren't considered when determining the IDV. Parts fitting to the vehicle that wasn’t factory-installed will be subject to separate calculations if an insurance policy is needed for them.

IDV Calculator: How to Use It?

IDV Calculator - Meaning, Importance, Steps to Use & Formula. In calculating IDV, various factors are taken into account. To obtain the correct result, you will need to enter all the following details into the car IDV calculator accurately

  • State selection

The registration state of the vehicle must be provided.

  • Pick a year

An essential criterion for determining IDV is the vehicle's year of purchase. Vehicle age can be determined by its year of purchase. In addition to depreciation, IDV is calculated after the vehicle’s value has decreased. As a vehicle age, its value decreases. To determine the age and depreciation of the asset, the purchase year is used.

  • Choosing a month

When determining the age of a vehicle, the month of purchase is used. An estimate of the year is provided. This allows an exact estimate of the vehicle's age.

  • Please select a make

In this section, you need to include the name of the Original Equipment Manufacturer.

  • Please select a model

Once you have decided on the vehicle’s make, you must decide on its model. There are several models in every automobile company's lineup, and every model has its value. IVs vary according to the model of the vehicle.

  • Specify a variant

Different engine and feature variants are available for each model. In general, a variant with a more powerful engine and more features will be more expensive and have a higher IDV. It is essential to know the variant when determining the vehicle's value.

You can use the IDV calculator to calculate the IDV for specific cars once you input these details.

How Does An IDV Calculator Work?

It is calculated by subtracting the depreciation from the manufacturer's listed selling price of the vehicle to arrive at the IDV value of the car. A vehicle's depreciation depends on how old it is. Only 5% of its value can be depreciated if the car is older than six months. In the case of a vehicle older than six months, IDV will be calculated using a 15% depreciation rate.

The depreciation increases by 20% between 1 and 2 years. Vehicles older than two years but less than three years can depreciate by 30%. A 40% depreciation is applied to the value of more than three years old but less than four years old. IDV is calculated based on 50% depreciation if the vehicle is over four years old but has not exceeded five years. The formula for calculating IDV follows.

IDV Formula

IDV can be calculated by using a simple formula. The manufacturer's price is used to calculate the IDV.

  • The invoiced value of a vehicle is equal to (the manufacturer's listed price minus depreciation) + (the cost of vehicle accessories minus depreciation of the parts).

The above formula applies to vehicles with factory-fitted accessories that have been added. The IDV formula for a car with no extra accessories is as follows

  • Identification Device Value = Manufacturer's listed price - depreciation

Calculation of IDV using the car depreciation rate table

To calculate your car's depreciation based on its age, you can refer to the following table

Age of Car Rate of Depreciation
0-6 months 5%
Six months - 1 yea 15%
1-2 years 20%
2-3 years 30%
3-4 years 40%
4-5 years 50%

You can calculate the IDV of your car by using the rate of depreciation.

Factors that Help Decide IDV

Several factors influence the IDV. Find out what they are.

  • When the purchase was made

Among the most critical factors for IDV is the age of the car. The IDV decreases as the depreciation increases with age.

  • Model and make

It depends on the vehicle's model and the selling price. The car’s make and model are indirectly related to the IDV.

  • Registration City

An IDV influenced by the city of registration is higher for a vehicle operating in a large town than one in a small town.

  • Standard Depreciation

IDV is determined by depreciating the vehicle. A limited amount of depreciation is allowed based on the vehicle's age.

How Does IDV Affect Car Insurance Premium?

Insurance premiums are directly proportional to the IDV of your car. As a result, you will be charged a higher premium if the IDV is higher. With your car's increasing age, the IDV will also decrease, which will reduce the amount you must pay for tips.

However, it is not recommended to choose a lower IDV to lower your premiums since there will be losses. For theft or total property damage claims, a lower IDV will result in a lower compensation amount. You want an IDV that is closest to your car's market value without having to pay a lot for it.

When it comes to auto insurance, how important is IDV?

According to the definition, IDV is the amount you will receive if your vehicle is stolen or destroyed.

In general, it is highly recommended to obtain an IDV close to the vehicle’s market value. Customers can choose a reduction in IDV between 5% and 10% available by insurance companies. If the reduction is greater, premiums will be lower.

IDV: Why Do You Need To Care?

Car insurance policies require you to consider the IDV of your vehicle. Furthermore, it plays a vital role in determining the premium of your auto insurance policy since it determines the maximum compensation amount for your car.

Your IDV determines your car insurance premium. Since IDV reflects the market value of your car at the time of claim settlement, it reflects the responsibility of your motor insurance company. An insurance provider incurs a lower loss charge when the IDV is lower and vice versa. As well as the type of coverage, geographic location, add-on coverage, and the like, other factors contribute to the final premium amount.

There's more. If you decide to sell your car, you should consider its IDV. You will automatically receive a higher selling price for your vehicle if the IDV is high. The lower your IDV, the more likely you will sell your car for a lower price. The selling price of your vehicle is also affected by other factors, such as claims experience, but you need to be extremely careful when setting the IDV.

Advantages and Disadvantages of High/ Low IDV

Below is a table explaining the benefits and drawbacks of setting a high or low insurance value for your car

Nature of IDV Advantages Disadvantages
High IDV When a theft or total loss occurs, a higher compensation will be paid Premiums to be paid at a higher rate
High IDV When a theft or total loss occurs, a higher compensation will be paid Premiums to be paid at a higher rate
Low IDV Payment of a lower premium Lower compensation will be paid during the settlement of theft or total loss claims.

The effect of IDV on auto insurance

The IDV of your car determines the amount of payout for your insurance claim, so it directly impacts your insurance premium for car insurance.

  • Your insurance premium will also be higher if your vehicle has a high IDV.
  • The IDV will be lower, however, if you prefer to pay a smaller amount for your vehicle's insurance.
  • You may have a loss if you choose a lower insurance declaration value than the actual value of your car.

The following points should be kept in mind when calculating IDV for a car

When buying insurance, it is essential to keep the following points in mind

1. This is the maximum amount that a policyholder can claim if their car is damaged or stolen.

2. It is possible to reduce the IDV voluntarily when you purchase insurance to bring down the premium. It will, however, lower your claim amount, so it is always recommended to choose a higher IDV instead.

3. It is essential to ensure that the insurance premiums you pay correspond to the IDV of your vehicle when you buy insurance.

4. You can also negotiate with your insurance company to get a higher IDV for your car if they urge you to contact a lower IDV.

Importance of IDV

When purchasing a car insurance policy, you need to consider IDV. If your car were stolen or totaled, your IDV would determine how much compensation you would receive. This factor also impacts the premium charged by the policyholder. High IDV results in higher premiums and will therefore contribute to higher insurance costs.

Using an IDV value calculator before finalizing your insurance plan is critical in determining your motorcycle or car insurance premium. Due to this, the correct IDV will ensure you receive the proper compensation in the case of theft or total damage and allow you to recoup your losses. Make sure to mention the correct IDV whenever taking out an insurance policy.

Conclusion

The Insured Declared Value plays a crucial role in determining your premium when you buy and renew your insurance coverage. Your claim process may be hindered if you do not state the correct IDV. Many insurance companies offer great deals, and they can help you choose the right plan. A decision can then be made to compare all the options available to you. As a result, you won't have to pay high premiums, and you can get the most out of your car.

FAQS

Q1. In the case of a new car, what will be the IDV?

If possible, the invoice value of a new car should equal the insured declared value or IDV. A new car is still depreciated even when it is a brand new car because it has been sold for usage. As a rule of thumb, depreciation is about 5% on new vehicles, so a new car's default maximum invoice value is 95% of its invoice value.

Q2. What is the invoice price of an outside-the-showroom car?

To estimate the IDV, depreciation is taken into account when a new car leaves the showroom. Most motor insurers charge only 5% of depreciation on the car's invoice value in the first six months after purchase. Therefore, the IDV of a vehicle outside the showroom is the invoice price minus 5% depreciation, therefore 95% of the ex-showroom value.

Q3.Do you think it's wise to go for a high IDV?

You should choose a high IDV if your car is old and in good condition or a low IDV if it is in poor condition. When you have a new car in good shape, you should go for a high IDV. However, if your vehicle is more than five years old and not in excellent condition, you should find a low IDV and avoid one with a high IDV.

Q4. To what extent can a car's IDV vary?

The IDV of car insurance is determined by factoring in the vehicle’s depreciation value. Nevertheless, motor insurance companies allow their customers to increase or decrease their set IDV by 15%. As a result, if your IDV as calculated by depreciation is Rs 5 lakh, you can choose between Rs 4,25,000 and Rs 5,75,000.

Q5. Which is the best IDV for cars?

Depending on the type of vehicle, IDV is best when it is the closest to the vehicle’s current market value.

Q6. IDVs differ among insurers for a variety of reasons. What are they?

Your car's IDV may differ from one insurance company to another since insurers lower the IDV to attract customers by lowering insurance premiums. A lower IDV also reduces their liability, compensating claimants at lower levels.

Q7. What causes the IDV of a car to decrease every year?

The IDV of a car decreases every year due to the depreciation of the car's market value. Cars depreciate as they get older and are used more frequently.

Q8. How are declared values calculated in the case of car insurance?

Depreciation on automobile parts is deducted from the Insured Declared Value. Registration and insurance on the vehicle are not included in the IDV. Accessories fitted to the car are calculated separately if they are not factory-fitted.

Q9. What is the best IDV for me?

As soon as you purchase a car, you are given the IDV based on the manufacturer's listed selling price. In normal circumstances, the depreciation of a new car is five percent, so the maximum IDV should be ninety-five percent of the vehicle's ex-showroom price.

Q10. What causes the IDV to decrease every year?

According to the Insurance Declared Value (IDV), your car is insured up to the maximum value for which it is covered in the event of total loss/theft for any given year. In normal circumstances, the value of a car depreciates over time. Because of this, the IDV of your vehicle is not just determined by its depreciated value but also by its market value.

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