We all are well aware of the fact that the value of an automobile depreciates with time. If we buy a brand-new car or two-wheeler from the showroom today and sell it, say in case of urgent need of money, after keeping the same for even 15 days, we will not get the same price which we used to purchase it.
For more the time we keep it in our possession and the more we use it the less value we would be getting while selling the same. In the same way, motor insurance company fixes the Insured declared value abbreviated as IDV as the insurable value of the automobile accounting its use, wear and tear etc.
In the event of a claim this will be the maximum value the insurer will be liable for. In other words, IDV may be considered as the true and ideal value of your vehicle.
The Indian motor tariff explains and provides a method for calculating the IDV. The insured declared value is the sum insured under the motor policy and is fixed at the beginning of the policy period for any type of vehicle which is to be insured may be private car, two-wheeler or commercial vehicle.
The depreciation percentage to be applied for arriving at the IDV is stated in the motor tariff as a schedule. This depreciation percentage increases with the age of the vehicle and is applied to the manufacturer’s selling price to get the IDV. Although, this method is followed by most of the insurers till today for fixing the sum insured, some insurers may permit the sum insured to some higher amount than the IDV.
As far as claims are concerned, this is to be noted that the schedule of percentage depreciation for IDV is applicable for total loss (TL) or constructive total loss (CTL) claim only as the full sum insured in paid only in such cases and a separate depreciation schedule is provided in the motor tariff for replacement of parts in partial loss claims. Total loss are the claims where the vehicle cannot be retrieved at all like in theft claims.
A constructive total loss is where the cost of repair or retrieval of the vehicle is more than 75% of the IDV or sum insured under the policy. A constructive total loss may be happening if your vehicle is badly damaged after getting immersed in flood water, in fact, most flood cases invite a CTL claim. Below presented is the schedule of depreciation for arriving at the IDV, this is applicable to all private cars, two wheelers and commercial vehicles.
| Vehicle age | % of depreciation |
| Not exceeding 6 months | 5% |
| Exceeding 6 months but not exceeding 1 Year | 15% |
| Exceeding 1 Year but not exceeding 2 Years | 20% |
| Exceeding 2 Year but not exceeding 3 Years | 30% |
| Exceeding 3 Year but not exceeding 4 Years | 40% |
| Exceeding 4 Year but not exceeding 5 Years | 50% |
After seeing the above table, a question which will definitely come to the reader’s mind that what if my vehicle is more than 5 years old and why any depreciation percentage is not mentioned for the vehicles older than 5 years.
Are vehicles older than 5 years are not insurable at all? Well, that is not the case, for any category of vehicles which are more than 5 years old or obsolete models not currently in circulation and for which manufacturing is stopped, the insurable value is decided by the insurer and insured by mutual consent.
For example, say I purchased a car in 10 October 2016 (this is the date of registration of the vehicle) at an invoice value of 8.95 lakhs and I want to renew the insurance of my car dated 11 October 2019. We may see the car has already completed 3 years a depreciation of 40% will be applied and the IDV or sum insured for my car becomes 5.37 lakhs.
Some insurers may offer a higher IDV say 6.5 lakhs for my vehicle. The value of accessories fitted in the vehicle or side car in two wheelers if not included in the manufacturer’s selling price, can be fixed as per the IDV schedule mentioned above.
As IDV is basically the sum insured under the policy all the rates as mentioned in the motor tariff is applied at the IDV to get the premium chargeable under the motor policy. Thus, if any insurer offers you the insurable value of your vehicle higher than the IDV, there is absolutely no problem with the same, you need to pay a higher premium for the time being but also able to recover more in case the case of a TL or CTL.
The most basic parameter affecting the IDV is the age of the car as depicted in the table. As already mentioned above that IDV depends on the manufacturer’s selling price. IDV will depend on the basic parameters and that affects the selling price of the vehicle. Some of these factors may be:
- City of registration of the vehicle – The ex-showroom price of car will generally be more in a metro city like Delhi compared to a tier 2 city like Indore.
Make and model – IDV for a high-end car like Audi will be surely more than a Maruti or Hyundai hatchback. Some insurers may have a different way of fixing IDV for high end premium cars like Ferrari or Rolls – Royce.
IC – S01 Principles and Practice of Insurance and Survey & Loss Assessment: IC – S01
IC 72 MOTOR INSURANCE EXAM