K. ARAVIND
Although car insurance companies offer lower premiums, it is important to check whether such policies provide adequate coverage. The insured declared value (IDV) of the car may decrease as the premium decreases. This can lead to a decrease in insurance coverage.
The sum insured amount of a car insurance policy is the declared value of the car’s insurance. Claims are settled on the basis of the amount insured by the car in the event of a car being stolen or damaged beyond repair. So the car owner should not focus on taking a low premium policy. The premium should be compared only after ensuring adequate insured declaration value.
A comprehensive car insurance policy covers two types of risks. The first coverage is for damage to the car. The second is coverage in the event of damage to another vehicle or accident to another person while driving. The premium for the second coverage is determined by law. At the same time the premium for the first coverage is determined based on the car’s insured declared value. That is why the car’s insured-declared value comes into play when taking out and renewing a car insurance policy.
When buying a new car, the insured declared value is determined based on the selling price. The insured declared value of a new car is determined after deducting the depreciation rate from the ex-showroom price. Normally, the depreciation rate of new cars is 5%. That is, the maximum insurance for a new car will be 95% of the declared value added to the showroom price.
As soon as the car exits the showroom, the depreciation rate increases and the insured declared value decreases. Every year the value of the insured car decreases at a fixed rate. One year after buying the car, the insured declared value decreases by 15 per cent. In subsequent years it decreases by 20 per cent, 30 per cent and 40 per cent. Five years after the purchase of the car, the insured-declared value will be only 50 per cent of the purchase price.
The Insured Declared Value is determined by the depreciation rate each time the premium is renewed. At the same time, the owner has the opportunity to determine the insured declared value of the car on his own. Each insurance company has set a lower limit and a higher limit for IDV, which can be determined in this way. Premium will also change according to IDV. As IDV decreases, the premium decreases.
A claim equal to IDV is determined in two circumstances. IDV can be fully claimed if the car is stolen or 75 per cent damaged in an accident that cannot be repaired. If the car is stolen, the claim is not settled immediately. If the car is not found during the police investigation, the claim will be settled only after a few months. Similarly, if the car breaks down beyond repair, 75 per cent of the damage will be found only if the inspection by special agents reveals that the IDV will receive an equivalent claim amount.
The IDV for cars older than five years is determined by mutual agreement between the car owner and the insurance company. Damage coverage for such cars is generally higher.
In short, car owners need to understand that it is advisable to set a sufficient IDV, even if the premium is slightly increased, in order to get adequate coverage for the car, even if the IDV is reduced.
