A comprehensive motor insurance policy comprises the mandatory third-party liability, own-damage (OD) and personal accident covers. Third-party insurance cover is mandatory and it covers damage to life or property of a third party by the insured vehicle. Own-damage, cover, on the other hand, insures your vehicle against theft or damage, but how does the insurer decide the value of the car or the premium that it needs to charge? That’s where the insured declared value (IDV) comes in.
IDV is calculated based on the invoice of your car minus depreciation and it’s the amount the insurer will pay if your vehicle is completely damaged or stolen. IDV, therefore, works as the sum insured and the insurer calculates the premium based on the IDV.
Insurers factor in depreciation while calculating the value of your vehicle. In fact, in the first year itself, the value of your car depreciates by about 5%. So every year, the insurer will calculate the premium based on the IDV of the vehicle that reduces every year.