Do you feel your car as an asset? Think twice! Reason is, from the insurance point of view this not at all considered as an asset. Instead, insurance companies consider it as a liability, whose value starts to depreciate immediately when you buy a new car or bike 🙂
Usually to arrive at value of vehicle or two-wheeler, insurance companies need to calculate the valuation to judge the premium. Such valuation will be very much important in case of complete loss or theft of vehicle. So you may say that in case of complete loss or theft of vehicle this valuation amount will be payable to you. Such valuation called IDV or Insured Depreciation Value.
How IDV or Insured Depreciation Value calculated?
As I said above this is the actual value of your vehicle in today’s term. IDV calculated on manufacturer’s listed price adjusted for depreciation based on the age of the vehicle.
Manufacturers Listed Selling Price= (Cost Price+Local Duties+Taxes)
Note-Excludes Registration and Insurance cost of the vehicle.
Accessories, which are not part of the fittings, are not included to arrive at such listed price. So if one need insurance for such materials then it calculated separately.
So total IDV= (Manufactured Listed Selling Price-Depreciation) + (Cost of Accessories that not included in Manufacturer’s listed selling price-Depreciation).
However, I am unable to find how insurance companies arrive at the depreciation value of accessories which includes glass, rubber or of any kind of materials.
Below is the depreciation table, which helps you to understand each year how your vehicle valuation will go on decreasing based on insurers.
You notice that after 5th year the valuation will drastically go down to below 50%.
Points to remember-
- Your premium depends on the IDV of vehicle.
- Lower IDV leads to lower premium.
- However, after 5th year it is the agreed value between insurer and insured. So never be in a mood that to pay a lower premium by lowering your IDV. Because in case of loss or theft this is the actual value, you receive. So be careful while arriving at IDV.
- At the same time, do not overestimate IDV after the 5th year, as there is a possibility that such valuation may not be agreeable to your insurer.
- Finally, think twice whether your car is an asset or liability 🙂