In order to understand the calculation of Car and bike insurance policy premiums, one needs to understand the concept of Insured Declared Value. Breakdown, repair and accidents of cars and bikes can lead to major stress on the financial health of policyholders. In order to ensure that policyholder has taken adequate amount of cover to deal with such situations, one needs to understand Insured Declared Value of vehicles.
Insured Declared Value:
Insured Declared Value can be taken as the current market price of your vehicle. Insured Declared Value is the maximum sum assured that a car insurance company would pay in case of claim being raised on loss of your vehicle or theft of your vehicle or if gets damaged beyond repair.
If the market price of your vehicle has been fixed at Rs 10, 00, 000 then the Insured Declared Value of your vehicle is Rs 10, 00, 000. In case you raise claim maximum amount of payment you can expect is Rs 10, 00, 000.
How is it Calculated?
In order to arrive at Insured Declared Value of your car, car insurance Company uses the following factors and then adjusts it with standard depreciation rates as prescribed under Indian Motor Tariff Act.
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Registration details of car
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City where the car has been registered as per the registration certificate.
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First Purchase or registration date as mentioned on registration certificate.
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Registration type whether it is privately owned or company owned.
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Details of Car manufacturer and model of car
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Cubic Capacity
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Vehicle Description
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Ex Showroom price.
Formula for calculation of Insured Declared Value:
Insured Declared Value = (Manufacturers Listed Price – Depreciation) + (Accessories not included in Listed Price – Depreciation)
Relation between Insured Declared Value and Vehicle Insurance Premium:
Vehicle Insurance premium is directly proportional to Insured Declared Value. Hence as your vehicle ages the premium for the vehicle goes down and so does the Insured Declared Value. As per Insurance Regulatory and Development Authority of India (IRDAI), the maximum declared value for the vehicle can only be 95% of its showroom price. Therefore just 7 months after purchase, the market value of your car depreciates by 5%.
Following table is used to arrive at Depreciated Value of your Automobile:
|
Age of Vehicle |
Depreciation Chart |
|
0-1 |
Insurance done at 95% of price. Depreciation—5% |
|
Renewal after 2nd year |
20% depreciation is taken, insurance done at 80% of price |
|
Renewal after 3rd year |
30% depreciation is taken, insurance done at 70% of price |
|
Renewal after 4th year |
40% depreciation is taken, insurance done at 60% of price |
|
Renewal after 5th year |
50% depreciation is taken, insurance done at 50% of price |
|
Renewal after 6th year |
10% to 15% depreciation on Insured Declared Value of previous year is deducted year on year |
Factors to Consider While Calculating Insured Declared Value:
Insured Declared Value can be in certain range depending on the ex-showroom price taken by the insurer. As owner of vehicle not knowing correct Insured Declared Value o vehicle might result in you getting inadequate compensation.
It’s imperative that Insured Declared Value of the vehicle is not understated as even though you might pay a lower premium but at same time you would get a depleted Insurance Cover.
One should also not overstate the Insured Declared Value of the vehicle under the impression that the claim value will increase. A higher Insured Declared Value is no guarantee that you will get higher price when you are selling it. Claims are settled not just on base of Insured Declared Value but also depends on type of loss.
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