When you buy a car, its insurance, registration and PUC are some formalities you need to look after. While the registration is a one-time process, the PUC and insurance are something that needs periodic attention. Even more in the case of insurance since PUC is simple and straightforward compliance.
Car insurance cannot be ignored since it is regulatory requirement by the Motor Vehicles Act of 1988. There are two types of policies that can be purchased, a third-party policy or a comprehensive policy. When you are looking for a car insurance plan, IDV is a critical term that you might come across. IDV or insured declared value is the maximum amount which your insurer pays in the event of a total loss scenario like damage or theft. However, there are misconceptions surrounding the IDV and thus it is important you know the truth. Here are some of the myths debunked –
#1 IDV is the maximum amount of claim for 1 year
There is a common myth that IDV is the claim that can be made during a year. However, the reality is different where theoretically there is no capping on how much claim can be made. You can make any number of claims that are below the IDV as specified in your policy. These claims in aggregate can exceed such amount of IDV. However, if a single claim amounts to 75% of such IDV, the insurer assumes it to be a case of total loss and pay the entire amount of such IDV. For claims, you are required to pay for the cost of deductible as well as depreciation for the repair costs.
#2 IDV is decided by the insurance company
Another myth around IDV is that it is determined solely by the insurance company. Instead, the regulator, Insurance Regulatory and Development Authority of India (IRDAI), has strict guidelines on how to determine the IDV. These guidelines specify for the depreciation rates that determine the IDV for vehicles up to five years of age. For vehicles older than five years, it is based on mutual agreement between you and the insurance company. Further, the insurance companies also allow you to alter the IDV within a specified range at the time of purchase. Thus, you can modify the IDV and not solely based on the insurer’s discretion.
#3 IDV is the resale value of your car
This assumption often leads to wrong interpretation of the IDV of your vehicle. IDV is often interchangeably used with market value of your car but the reality is far from it. The IDV of your vehicle is calculated after accounting for depreciation. This value is much lower than the market value of your car which is arrived at after considering the condition of your vehicle, the brand, performance and more of such criteria.
#4 It is advisable to lower IDV to save on premium
While reducing the IDV can help to lower the car insurance prices, it is not the best way to keep your premium within your budget. This is because lower the IDV, lower is the insurance coverage in the event of total loss to your car.
These are some myths surrounding IDV that you must not believe. Stay aware of them and make use of a car insurance calculator that can help to decide how the IDV will impact your premium. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.