Basis of sum assured under motor insurance

A motor insurance is an insurance policy which acts as financial security for the owner of the vehicle in case of loss due to theft or damage. A motor insurance is available for both two wheelers and four wheelers, and having a third party motor insurance is compulsory in India. Based on the terms and condition of the motor insurance policy, one can claim a particular amount for the damages caused to the vehicle.

The sum assured in motor insurance policy is known as the Insured’s Declared Value or IDV. It is the maximum amount which one can claim in case of loss or damage. Declaring a correct IDV is very much important to avail the maximum benefits from your motor insurance policy. So let us understand all the aspects of IDV through this article.

What is IDV?

Insured Declared Value or IDV is the market value of the insured vehicle which is fixed by the insurance company. It is the maximum amount which the customer can claim as compensation in case of accident or even loss due to theft. All the vehicles are depreciating assets which mean that their value decreases over time and that’s why at the beginning of the policy, the amount of IDV is fixed upon the manufacturer’s listed price for the model of the vehicle and it remains the same till renewal. After that, the IDV is adjusted as per the depreciation applicable.

How IDV is calculated?

IDV is fixed upon the manufacturer’s listed selling price of the brand and model.

After that it is adjusted for depreciation. The adjusted IDV is always less than the previous IDV as the manufacturer’s listed price is deducted from the rate at which vehicle is depreciating. According to the guidelines of IRDAI, the maximum IDV for a four wheeler is 95% of its showroom price and after six months the value starts depreciating. Following is the schedule used to calculate IDV Age of the vehicle Less than six months 6 months to 1 year 1 year to 2 years 2 years to 3 years 3 years to 4 years 4 years to 5 years

Rate of depreciation 5% 15% 20% 30% 40% 50%

So the formula for calculating IDV is IDV = {*(Manufacturer’s listed selling price)+(Sales Tax)+(Accessories excluded)(Depreciation) ]-(Depreciation+Registration cost+Insurance cost)} There is no formula of calculating IDV for vehicles which are more than 5 years old. The IDV for such vehicle is calculated upon the discussion held by the insurance company and the mutual understanding between the insurer and the vehicle owner.

If you want to insure those accessories which are not factory-fitted then you need to pay extra charge and it is not included in the IDV. Why declaring correct IDV is important?

Declaring a correct IDV is very much important to avail the maximum benefit from your motor insurance. Both the cases of low and high IDV will result in a costly deal for you. So let us consider both the scenario and see what are the consequences.

Declaring a low IDV Many people think that declaring a low IDV will help them minimize the premium amount and that’s true, but at the time of claim, a low IDV will only push you toward losses. Imagine a situation where the accidental expenses are higher than the IDV. In such situation, you will have to pay from your own pocket even after having a motor insurance policy.

Declaring a high IDV Declaring a high IDV will increase your claim amount, but you will have to pay higher premiums as the premium amount is directly related to the IDV. At the time of claim, the insurer considers the age and the depreciation of the vehicle before approving the amount of the claim. This can result in a lower claim amount even after declaring a high IDV. So declaring the correct IDV is always considered as an ideal decision because it will help you to get the right claim amount by paying the right amount of premium.

Which factors affect IDV? You must know the factors which affect your IDV so that you don’t have to face any hassle in the future. Your IDV is affected by the following factors  Age of your vehicle  Model of your vehicle

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Availability of your vehicle Accessories which are not factory fitted in the vehicle Brand of your vehicle Condition of your vehicle Current selling price of the vehicle

Re-evaluate your IDV during policy renewal Never miss the chance to re-evaluate your IDV during the policy renewal. Always check the IDV and if the premium is reasonable or not. At the time of renewal, if you feel like your IDV is into justifiable, then you can negotiate or switch to a different insurer. But you need to keep in mind that the premium amount is directly related to the IDV, so a higher IDV will result into higher premium amount.

The right mix of various coverage and deductibles allows you to avail maximum benefit from the your motor insurance and IDV falls in the same category. Always declare the right IDV and don’t forget to re-evaluate your IDV during policy renewal.