Importance of Choosing Correct IDV When Buying Car Insurance
Importance of Choosing Correct IDV When Buying Car Insurance
![Choosing Correct IDV with Car Insurance Choosing Correct IDV with Car Insurance](/images/default-source/car-insurance/choosing-correct-idv-with-car-insurance.jpg)
IDV, or the insured declared value, is a very important concept in car insurance. It is important because the premium you pay for the policy is dependent upon it. Also, when you make a claim, your payout is also related to the IDV. Hence, the IDV matters a lot in car insurance and you should be very careful when determining the figure. Take a look at this article to know more about the concept of IDV and why it is crucial in motor insurance.
Understanding IDV
Car insurance works on a simple principle - if your car gets stolen, damaged or requires repairs, the insurance provider compensates the financial losses you incur because of it. In return, you pay a regular premium. The premium is a fixed amount and needs to be paid out even if there is no claim or even a probability of a claim. The insurance plan, therefore, works as a security and a guarantee.
The premium, though fixed, depends on various factors. These include the value of the car and the IDV. The IDV is nothing but the current market value of the car. When the car is brand new, the IDV is equal to its price. However, as the vehicle depreciates with time, it starts to drop in value. The IDV also becomes lower. This is why the premium is high when the IDV is high and vice-versa.
The IDV is determined after considering the car’s age, condition and value. You should not deliberately lower the IDV just to lower the car insurance premium.
Importance of IDV
The car insurance policy that you buy promises to reimburse you if your vehicle is stolen or damaged. Thus, you need to have a proper IDV as your claim amount will depend on that. However, declaring a very high IDV will push up the policy premium as well. It is important to fix the correct IDV because of the following reasons:
1. Insurance premium
As mentioned above, the higher the IDV, the more car insurance premium you have to pay. This is why you need to be practical when deciding on the IDV of your vehicle. Keep the risks associated in mind, but do not play it too safe as increasing the IDV unnecessarily will push up the insurance premium steeply as well.
2. Claim amount
However, being too generous while deciding on the IDV can be harmful in the long run. If your IDV is low, your insurance premium will surely be less, however, the claim amount will be even lower. Let us assume the actual value of your car is INR 2 lakhs and you state the IDV as INR 1 lakh. Unfortunately, your car gets stolen and you make an insurance claim. Since the IDV is mentioned as INR 1 lakh, you will only get a payout of INR 1 lakh, even when the cost of the car is INR 2 lakhs.
Be practical when deciding the IDV and balance both the aspects mentioned above.
An advantage and a disadvantage of high IDV
There are certain advantages and disadvantages of selecting a high IDV. let us see what they are:
● Advantage
The only advantage you get is that the car insurance premium is low.
● Disadvantage
The biggest disadvantage is that during a claim you get a lower payoff amount.
Points to remember
Before you finalize the IDV for your vehicle, here are a few points for you to remember:
1. Compare
It is very important for you to compare the various car insurance policies before you make a purchase. When you compare, you find the best and the most economical option. You may also find a plan where the premium is low even when you declare a high IDV. look for such options but remember to choose a good insurance provider who would honour your claim when needed. Do not buy the first policy that you come across as that may not be the best option for you.
2. Understand the risks
No matter which policy you choose, remember to assess the risks. For example, evaluate the age and the value of the car. Then, if you are a novice driver, the risk of getting into a mishap will be higher and therefore, you need a higher IDV. assess all the risks around and then arrive at the correct number.
3. Evaluate the value of your car
If the car is new and expensive, you will need the highest possible IDV. you cannot compromise on the IDV just to make some savings on your car insurance premium. If you do so and then your car gets stolen or damaged, you will incur a huge financial loss. However, if your car is old and you plan to replace it in the near future, you can opt for a lower IDV.
4. Check your budget
Finally, but very significantly, always keep a track of your budget. You need to have a car insurance premium that you can afford. If the IDV is too high, your premium will also be high. Ensure the amount is manageable for you and you won't have to struggle to pay the car insurance premiums on time. Finalize the IDV after taking this very important point into consideration.
Keep these very important factors in mind and you won't have any trouble finalizing the perfect IDV when you buy the car insurance plan.
Conclusion
Now that you understand the concept of IDV, you can understand why it is so important in car insurance. Therefore, you should take your time, do the math and then arrive at the correct IDV. When selected correctly, the IDV can offer a profitable deal to you at the time of a claim and also when maintaining your car insurance costs.
Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.
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