How increasing and decreasing IDV can impact you?

A quick guide on the impact of increasing and decreasing IDV on your motor insurance premium?

How increasing and decreasing IDV can impact you?

The Motor Vehicle Act of 1989 clearly states that vehicles running on Indian roads must have basic third-party insurance. Any person breaking the law will have to bear the repercussions. Therefore, as soon as you purchase a car or two-wheeler, ensure that you have the right insurance to safeguard the vehicle, yourself, and those who may ride in your automobile. 

For this, let’s understand IDV or Insured Declared Value first.

What is an IDV?

IDV basically means the maximum sum assured given or assigned by the insurance company for your vehicle. It ensures compensation for the owner of the four-wheeler or two-wheeler or the policyholder in case of eventualities such as theft, loss or damage of the vehicle from an accident.

You can look up a lot of insurance policies online. In fact, you can complete the entire process of purchasing insurance online. However, as the owner of the vehicle, it is essential to know why increasing or decreasing the IDV can have a significant impact when buying auto insurance.

Here are the reasons why and how these essential issues can be dealt with ease. 

Increasing IDV:

Let’s start with increasing the IDV, which you may feel is necessary to do. Having an increased IDV helps when there is total damage caused to the vehicle during an accident. The role of IDV is critical when calculating the premium to be paid. Around 2-3% of the premium is increased based on the age of the vehicle and the cubic capacity. Therefore, increasing IDV translates into a higher premium charged to you.

Related: 6 Motor Insurance terms you must know before you claim

Decreasing IDV:

What would a decreasing IDV lead to?

The reason why the insurance company encourages vehicle owners to get a higher IDV because of the reimbursements on damages to the vehicle when accidents happen. Decreasing the IDV can impact negatively in the event of a loss or a theft.

Also, the impact of lowering the IDV of the vehicle will lead to insurance cover, which is lower than the market value. This is a wrong decision as per industry experts. The need to devaluing the car is not recommended. Lower IDV simply means lesser benefits, and can be precarious. It can lead to higher expenses when the vehicle is not totally damaged as a result of an accident but can still be repaired. Thus, the amount over IDV - the repairing and replacement charges will be borne by the owner.

It may be odd to advise against lower IDV. But, it's always better to pay a higher premium with an increased IDV. Why will a vehicle owner apply this thought because the expenses incurred when damages and loss take place is irreversible? The money spent is hard earned. Therefore, it is always good when one opts for the maximum sum assured that the insurance company will pledge to compensate for in the event of incurring vehicle damage.

Related: What is IDV and Why Insured Declared Value is Important?

Voluntary Deductibles:

Insured Declared Value or IDV is calculated on the basis of voluntary deductibles. There are two types of voluntary deductibles. First is a compulsory deductible - which is fixed by the insurer. This amount is a compulsory payment made by the policyholder when a claim is raised. As per the IRDA regulations, the amount for two-wheelers is Rs. 50 and four-wheelers are Rs. 5000. It can be a higher amount depending on the age of the vehicle as it will present higher risks. It can also be a higher amount in the case of a higher cubic capacity vehicle. Alternatively, it can also be higher if the risk of a claim is perceived to be more significant. The premium amount cannot be lowered in the case of compulsory deductibles as this is factored in while calculating the IDV.

The second is the voluntarily deductible which is decided on by the owner of the vehicle. This limit is defined by the vehicle owner depending on the amount payable personally in the event of loss or damages caused to the vehicle during an accident.

Related: I failed to change my car ownership details and paid a heavy price

What are deductibles in an insurance policy? 

These are provided in comprehensive coverage policy. These are included with a view to reducing the claim. When there is a compulsory deductible, policyholders will avoid claiming insurance for smaller damages. Also, a higher compulsory deductible will automatically entail driving cautiously to prevent accidents. In the case of opting for a voluntary deductible amount, it involves a discount on the premium which is another method to discourage claims. It also means that the policyholder will share the claim amount payable for the damages.  

Related: Claiming compensation under third-party motor insurance

Industry experts and insurance companies recommend that seasoned and confident drivers/owners opt for voluntary deductibles. It is a great way to save on the premium amount.

While having the right insurance with IDV is essential, staying safe and driving within the regulations is of paramount importance. Untoward incidents can happen. Therefore, IDV is vital. Lastly, remember that driving without motor insurance in a punishable offense as per the law of the land. Just bought a new car? Here’s what you need to do next!

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