Planning to renew your car insurance? Here is why it is important to set the IDV correctly

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Car Insurance Policy and IDV
Car Insurance Policy and IDV

New Delhi : Opting for a car insurance policy is not just a precautionary measure that helps safeguard your vehicle from damages and theft, but, under the Government of India’s mandate, it is also a legal obligation. According to the Motor Vehicles Act of 1988, third party car insurance is essential for all four-wheelers operating on Indian roads. While third party car insurance policies cover the damages caused by the insured car to a third party, they don’t cover the car itself. This is where comprehensive car insurance policies like the ones offered by Bajaj Finance become more prudent options for car owners.

Comprehensive car insurance plans indemnify the policyholders against both – third party damages caused by the vehicle, as well as damages and theft of the insured car. To ensure a holistic coverage umbrella, insurance companies have to determine the value of their policyholder’s car. IDV or Insured Declared Value corresponds to the current market value of an insured car after taking into account depreciation. It is the maximum claim amount the insurance company will pay to the policyholder for damages or theft. While most policyholders compare the premium costs, coverage umbrellas and add-on benefits of comprehensive car insurance plans, they often overlook or underestimate the importance of IDV calculations during such comparisons. 

Understanding IDV Calculations

Insurance companies take depreciation costs into account when determining the IDV of a car. This depreciation cost corresponds to the value reduction of your vehicle as it gets older. In other words, with the increasing age of the car and its regular usage, a certain amount of wear and tear is expected. This translates into the devaluation of your car’s overall cost estimate in the market. Every car insurance provider will incorporate this age-related depreciation cost into IDV calculations to effectively reduce the maximum claim coverage for your car.

While depreciation rates for IDVs are fixed for cars up to 5 years old, for vehicles older than 5 years, the rate is mutually agreed upon by the insurance company and the car owner. Factors that are taken into consideration while taking into account the IDV calculations are:

  • Depreciation Rate
  • Age
  • Model
  • Brand
  • Registration details

Estimating the IDV of your vehicle is essential when renewing an insurance policy to make the most of your coverage umbrella. 

Why determining the right IDV for your car insurance policy is essential? 

By setting the right IDV, customers enjoy certain perks and benefits. Since the premiums for car insurance policies depend on the IDV estimates for the vehicle, after depreciation appraisals have been acknowledged, policyholders often consciously reduce the IDV of their cars to reduce premiums. However, this can be detrimental when they are filing settlement claims. To avail of sufficient damage compensation, it is advisable to freeze the IDV as per the current value of your vehicle. Since car insurance companies use policyholders’ IDV as the equivalent of their maximum claim amounts, undercutting IDV estimates to lower premiums can translate into insufficient disbursements when paying for the theft or damages suffered by the insured vehicle. This, in turn, defeats the purpose of owning a car insurance policy.

Updating IDV estimates when renewing a car insurance policy online

Since depreciation costs of a car model need to be incorporated into IDV calculations, it is essential to review IDV estimates each time policyholders renew their car insurance plans. Both our partners Bajaj Allianz and Acko provide comprehensive car insurance plans. These plans come with third party liability coverage and a comprehensive personal accident and vehicle damage cover. With affordable premiums and partnerships with network garages that offer a cashless claim settlement facility, policyholders can optimise the perks of their car insurance policy against a minimal expense rate. These plans are available to purchase online through a 100% digital platform on the official website of Bajaj Finance Limited. Here you can get more information, compare the features, benefits and premiums that our partners offer and choose policy that suits your needs. 

To summarise, policyholders need to set correct IDV estimates and update the same when renewing their comprehensive car insurance policies to get adequate indemnity payment when filing for the loss of the insured car or damages sustained by the same. While setting a higher IDV will increase premium payments, a lower IDV may result in insufficient claim disbursements, forcing the policyholders to pay out of their pockets.