One of the most important things that you should check when buying a vehicle insurance is to check the insured depreciation value, more popularly known as IDV in insurance parlance.
What is this IDV?
IDV is nothing, but the cost of the vehicle at this very moment and the amount that you would get if your vehicle is stolen.
Each year your vehicle undergoes a depreciation and the value of your vehicle reduces. Let's give you an example. Say you buy a vehicle in 2013 at a cost of Rs 1,00,000. The present value of the vehicle one year down the line will not be Rs 1 lakh. In fact, it would be only Rs 80,000, because a 20% depreciation may apply, as the vehicle has become old.
So, the insurance company will estimate your IDV at Rs 80,000, which is your today's cost of the vehicle. So, if your vehicle is completely destroyed you would get only Rs 80,000.
Generally the following depreciation norms apply to arrive at the ID:
0-6 months old car - Depreciation 5%
6-1 year - Depreciation 15%
1-2 years - Depreciation 20%
2-3 years - Depreciation 30%
3-4 years - Depreciation 40%
4-5 years - Depreciation 50%
Why it's important to check the insured depreciation value?
When buying a vehicle or car insurance policy, make sure you check the IDV. Companies may reduce this value and reduce your premium accordingly. It's always important to compare your premium and IDV.
If a company is offering you a lower premium, it's possible that the IDV too would be low. This may not be to your advantage, though initially you would be paying a lower premium.