What Is Total Loss All About?

05 Aug 2021

Car insurance policy language, at times, can be difficult to comprehend even for people who have spent years behind the wheel. Total loss, totaled car, deductibles, Constructive Total Loss, total loss insurance and Insured’s Declared Value (IDV) are a few of the terms which are too complex and subtle for most people to understand. But whether we like it or not, we have to grasp these terms to get the idea about the policy that is meant to protect us against financial loss in the event of an accident or theft of our car. Unfortunately, most car owners realise how ill-informed they are about the content of their car policy only after they have to go through the claim process. So, every time you buy or renew the insurance policy, you must read the draft carefully before signing the documents. This blog tries to explain what total loss is all about, what it means to your car insurance claim, and what you need to do if, unfortunately, you have to face such a situation. 

An insured vehicle is declared a total loss car in insurance parlance if the estimated cost of repairing it is more than 75 per cent of the Insured’s Declared Value (IDV). The IDV is the sum insured at the commencement of the policy. And it is, for all practical purposes, the market price of the car. The car declared a totaled loss is referred to as a totaled car.  On the other hand, the insurance companies call an insured car a Constructive Total Loss (CTL) when the aggregate cost of retrieval and repair of the vehicle exceeds its current value or worth.

In simpler words, IDV means the maximum amount your insurer will pay you if your vehicle is damaged beyond repair or is stolen. If you bought a car for Rs 10 lakh, your insurer would compensate you for a maximum of this amount. The IDV of a vehicle is determined based on the manufacturer’s listed selling price plus the value of car accessories, minus depreciation.

The manufacturer’s listed selling price means the original cost of the vehicle plus taxes and duties.  

Registration and insurance cost is not included in IDV. When buying insurance, the IDV of the accessories, which are not factory fitted, is calculated separately if insurance is needed for them.

The IDV keeps decreasing.

It is important to note that the IDV of your car starts depreciating the moment it comes out of the showroom. It is also to be noted that the premium for the car insurance policy also decreases in proportion to the IDV.

What is IDV dependent on?

The following factors determine the IDV of your car:

• Make and model of the car.
• Age of the car
• Mileage
• Condition of the car
• Date of registration of your car.
• If it is a private car or a company owned
• Cubic capacity and ex-showroom price

Constructive total loss vs total loss

If your vehicle has suffered a constructive total loss that means it cannot be restored to its pre-damaged condition. On the other hand, it is a total loss if your vehicle has suffered damage that can be repaired, but the repair cost exceeds the IDV of the car by 75 per cent. 

To understand it further, in the case of a constructive total loss, the cost of repair is so high that it is cheaper to buy a new car than to get the damaged one repaired. When it comes to total loss, there is little chance that the vehicle can be repaired at all. 

In both cases, a policyholder gets just the IDV unless you have add-ons to protect you from this situation.

So, should you increase IDV?

Sometimes, car owners tend to increase the IDV of their car, particularly at the time of policy renewal and don’t mind if they have to pay a higher insurance premium. Insurers have their way to deal with this, and many a time, they reduce the settlement amount, citing gross overvaluation of IDV.

Can you claim the total value of the car?

If you have a return to invoice add-on in your car insurance policy, it can come in handy when your car is declared a total loss due to theft or damages beyond repair. The policy will ensure that you are not compensated just for the IDV of the car but get the total value of the vehicle.

How is total loss assessed?

Once the insurer comes to know about the damage to an insured vehicle, it sends its surveyors to the accident site to assess the damage. The experts use several factors to determine your car’s actual cash value.

What to do when your car meets with an accident

Your first and foremost step should be to ensure your safety and that of others if your car is involved in an accident. You are by law required to file a first information report with the police. It would help if you made it a point to inform your insurance company about the accident to take their first step. Any delay in reporting to the insurers may create hurdles in claim settlement or even lead to a reduction in IDV. In the case of the totaled car, the car owner is also required to inform the Regional Transport Office (RTO) within 14 days if a vehicle has been destroyed or rendered permanently incapable of use. The RTO initiates the cancellation of the car’s registration. After you accept the insurer’s offer for totaled car settlement, you are required to hand over the keys of the vehicle.

Documents needed for claiming insurance:

Submission of documents is an essential aspect of the process of making your insurance claim. The insurance companies usually ask for the following documents before processing your claim for total loss in car insurance:

• Copy of Registration Certificate of your car, which should be valid at the time of the accident
• Surveyor report on ascertaining the reason of loss, the quantum of loss, etc.
• Copy of your car insurance policy
• Duly filled and signed claim form
• The estimate of the vehicle repair cost
• A copy of the driver’s license which should be valid at the time of the incident
• Copy of the FIR/ panchnama registered

Tip to car owners

While the car insurance companies are guided by the Insurance Regulatory and Development Authority, each of them could have different rules on policy claims. Sometimes you may be denied claims on grounds you will find acceptable but can’t do much about it. So, it’s essential to read the fine print of the policy document and strictly follow the terms and conditions.

Here are some of the possible reasons your car insurance claims could be rejected:

• Lapsed policy
• Filing fraudulent claims
• Non-disclosure of modifications made in the car
• Claim against exclusions in the policy
• Driving while intoxicated
• Not reporting the accident or damage to your insurance company in time

Looking for car insurance? You don’t have to go far. Visit Liberty General Insurance Limited for all solutions to your insurance problems.

Disclaimer: For more details on risk factors, terms & conditions please read sales brochure carefully before concluding a sale. *The discount amount will vary subject to vehicle specification and place of registration