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Does the value of your car affect its insurance premiums?

Does the value of your car affect its insurance premiums?

The market value of your car plays a key role in car insurance, especially in determining your premium. Read this article to find out how and why.

IDV is only the declared value insured.  This is the concept used to determine the current market value of your vehicle. The insured declared value is calculated by subtracting the depreciation cost from the manufacturer's declared sale price. It is important to buy an affordable plan while purchasing your car insurance policy. In determining the cost of your car premium, IDV of your car plays an important role. This article will explain what IDV is and why it is important in the context of car insurance. 

What is the importance of IDV in car insurance?

In the event of significant damage beyond restoration, the policyholder of the car will pay the full or maximum amount of the claim that the insurance company is entitled to. The amount your insurance company pays depends on many factors that include the current market value of the vehicle.

The value of your car begins to be depreciated once you buy it. If your IDV is low, your car premium will be low and the payment amount will also be low. Insurance companies take into account some details of the car, such as when it was purchased and the model, its accessories and the number of times it was serviced, in the IDV account. 

With the age of your car your premium will drop. The older the car, the lower the cost of the premium. This is mainly because auto parts are worn and strained while used for a certain period of time. This wear and tear will reduce the efficiency of the system and lead to consumption. Consumption reduces the current market value of the vehicle, thereby reducing the claim amount. So your premium is also declining.

How does IDV affect the cost of car insurance premium?

Insurance companies rely mainly on the risk factor and market value of your vehicle to determine the cost of your car premium among many other factors. To go in depth, the reason the value of your insured declared car affects the premium is because of the following-

Amount of settlement of car insurance claim

The cost of your car premium is directly proportional to the amount of claim you will receive. If the company considers that it will have to provide high cash assistance, it will charge a higher premium. At the time of dispute resolution, insurance companies are mainly considering the insured value of their vehicle. In the event of an accident that causes your car to be irreparably damaged, your insurance company must pay the amount equivalent to the declared insured value of your vehicle at the time of the claim. Therefore, you receive a higher claim amount if your car's IDV is high. Similarly, you will receive a relatively lower claim if your car's IDV is low.

Buy or renew your car insurance

When you purchase or renew your car insurance policy, your car's IDV will directly affect your car premium. The high IDV means you pay a higher premium for insurance. On the other hand, lower IDV costs you a lower bonus. 

Take away

Both your car premium and your claim amount are significantly affected by the declared insured value. Make sure your car's IDV account is correct to see how to use it. Making sensitive decisions is the key to affordable and maximum car insurance policy. Safe engine!

Read also:

5 Most important sections in the drafting of the car insurance policy

The most important factors that determine your car's premium

Disclaimer: This article is published in the public interest and is intended for public information purposes only. Readers are advised not to rely on the contents of the article as crucial in nature, and further research or expert consultation should be conducted in this regard.