Insured Declared Value explained: How it affects your car insurance premium in the Philippines

When you purchase a car in the Philippines, one thing that’s a must is car insurance, which provides the owner's financial protection against risks such as damage from accidents, collisions, fire, flood, or theft. However, the universe of car insurance is not straightforward and is loaded with several essential terms, one of which is Insured Declared Value (IDV).

In this article, we’ll discuss IDV —its meaning, importance, how it works, its impact on car insurance premiums, and more. Thus, ensuring that you are appropriately educated on the subject and can choose the right IDV for your car.

So, without any delay, let’s begin -

What is Insured Declared Value?

In simple terms, Insured Declared Value (IDV) represents the current market value of a motor vehicle, which is the maximum amount of money your insurance provider will pay in case your car gets stolen or declared a total loss. Overall, think of it as your car’s ‘insured worth’.

Let us understand with an example -

Take, for instance, your car’s IDV is set at PHP 200,000; that’s the limit your insurer will offer as a settlement in case of car theft or a total loss.

Furthermore, IDV forms the very foundation of your car insurance policy and coverage, and plays a significant role in premium calculation.

Importance of Insured Declared Value

You’d be mistaken to consider IDV just another insurance term —understanding it is essential to make an informed financial decision. Choosing the right IDV ensures -

• You do not overpay for premium.
• Do not end up underinsured.

Overall, IDV helps you strike a balance between coverage and affordability.

Also Read: Car Insurance Endorsements: What they are & why they matter

Understanding the working of Insured Declared Value

How do insurance providers calculate IDV?

In the Philippines, insurance providers mostly follow a standardised practice to determine a car’s IDV, i.e., the manufacturer’s listed selling price adjusted for depreciation over time. By this logic, with every passing year, your car’s value depreciates—meaning the IDV and premium will gradually decrease as the vehicle ages.

Role of depreciation in determining IDV

A little about car depreciation  Car depreciation refers to the reduction in a car’s value due to regular wear and tear over time. It occurs due to factors like usage and time. It is essentially the difference between the purchase and the approximate market value of a vehicle. Significant factors influencing a car's depreciation rate include the vehicle’s age, total kilometres driven, condition & maintenance, and the car’s make/model.

 

In the Philippines, a car typically depreciates by up to 20% in the first year and by around 10% in subsequent years. However, these figures vary depending on several factors discussed above.

Example of IDV calculation -

Let us assume a 1-year-old car with a showroom price of PHP 900,000. Using a 20% depreciation rate, the IDV will be -

PHP 900,000 - (PHP 900,000 X20%) = PHP 720,000 IDV

So, the total claimable amount for total loss or theft in this case will be PHP 720,000.

Also Read: Car insurance participation fee: All you need to know

Insurance Declared Value (IDV) & Car Insurance Premium: The relationship

Do you know that your car’s IDV directly impacts the premium amount? You see, a higher IDV is usually considered a greater liability or risk by the insurer, resulting in a higher premium. Similarly, a lower IDV results in lower premiums, as the amount of compensation is lower.

Fun fact: Premium is usually calculated as a small percentage of the declared IDV (1.5% to 3%).

Does higher IDV mean better coverage? Not necessarily. While it is tempting to declare a higher IDV, which also maximises the claim potential, this approach has its drawbacks. A higher IDV would lead to unnecessarily high premiums, and the insurer might still pay only the market value during the claim.

So, what to do? It is therefore recommended that you choose an IDV that reflects your car’s realistic market value. This way, you’ll be guaranteed fair compensation without overpaying for coverage.

Factors influencing IDV

The table below lists all the factors that have an impact on the car’s IDV in the Philippines -

Car’s age and condition	Old vehicles: Lower IDV due to wear & tear New vehicles: Maintain higher IDV as they are in better condition
Car’s make, model, & market value	Popular brands like Honda, Toyota, and Mitsubishi retain a car’s value better than lesser-known ones.
Car modification & accessories	Added features & accessories increase the car’s overall value, thereby increasing the IDV.
Insurance provider’s policy	Different providers have varying depreciation rates and risk assessment methods.
Market trend	Market trends, such as inflation and the availability of spare parts, influence the IDV.

Also Read: Impact of safety features on car insurance premiums

Tips to choose the right IDV

To get the best IDV for your car, here are some practical tips to consider -

• Compare IDV quotes from multiple insurance providers.
• Make sure to do proper research and know your car’s fair market value.
• Review and adjust your IDV annually to ensure it reflects your car's actual value.
• Ask your insurer for a depreciation breakdown.

Common mistakes to avoid

• Overstarting IDV to procure higher claims
• Choosing a low IDV to save on premiums
• While renewing policy, ignoring depreciation

IDV & car insurance claim

We are generally asked how IDV determines the claim settlement amount. You see, if your car has been stolen or declared a total loss, the claim amount would be the IDV minus depreciation & deductible costs.

Note, IDV ensures your claim amount is fair and equals the car's current value.

Now, what if your IDV amount is too low or high? While the former would ensure low premiums and claim settlement amounts, the latter would push for higher premiums with no guarantee of high returns.

Also Read: Your go-to guide for car insurance renewal in the Philippines

Bottom line

As a car owner, it is crucial to thoroughly understand the concept of Insured Declared Value (IDV). Why? With the correct IDV, you can ensure fair, balanced insurance coverage that is not only affordable but also compensates you well when needed. A well-chosen IDV reduces the risk of underinsurance and overpaying the premium.

So, practical tips to ensure all this is via reviewing, comparing and negotiating policies. Go for the one that best matches your car’s real value.

 

Also Read: Think your policy just expired? It might be cancelled — Learn the difference