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All You Need to Know About Total Loss in Car Insurance

Wish

Written by Sumit Arora

Updated Oct 16, 2023

An insurance policy is supposed to protect your financial interests as well as your car in case of any unforeseen accidents. Read on to find out what can happen when the situation is extreme.

Accidents are unforeseen and there are often irreparable damages that cannot be fixed. In car insurance, a total loss is declared when it is damaged extensively, so much so, that the cost against that would be more than the Insured Declared Value (IDV) that has been stated by the car. 

All You Need to Know About Total Loss in Car Insurance

Declaration of Total Loss

Total loss in car insurance is declared by the insurer if the claims made against the policy is more than 75% of the IDV of the vehicle. Besides in a situation where an accident has damaged the car beyond repair, a total loss can also be declared if the vehicle is stolen. The payout that is provided in case of a total loss is the actual cash value of the vehicle. This amount does not take into account the depreciation that the car's value has been subjected to, since its purchase.

How is the IDV of a Vehicle Calculated?

The IDV of a vehicle is calculated by deducting the depreciation from the manufacturing price of the vehicle, including any parts and accessories that are included in the car. The more the age of the vehicle, the more is the depreciation rate. In case the vehicle is more than five years of age, the IDV is mutually decided between the insurer and the policyholder. Besides the age, other factors that affect the IDV of a vehicle include the model, the capacity of the engine of the car, the present mileage, the earlier market value of the car and more.

What is Constructive Total Loss?

In a situation where the vehicle is so damaged that it is better to buy a new one, a constructive total loss is declared. It is usually when the car has been damaged beyond repair, to the point that there is almost no way of getting the car back up to how it was. In such cases, the repairing cost is also way higher than the present IDV of the car. In case this does occur to any vehicle, their registration needs to be cancelled within 14 days of the day of the incident. This is mandated by the Motor Vehicles Act and has to be carried out at the Regional Transport Office where it had been originally registered. 

Return to Invoice Add-On

A return to invoice add-on is the ultimate add-on that will enhance the protection provided by your car insurance policy. It is especially beneficial in case of a total loss because it ensures that the policyholder is reimbursed the original price of the car as declared in its invoice instead of the IDV, which is usually less than the invoice price. This is greatly helpful as it provides policyholders with the entire amount rather than a reduced price as a result of the depreciation and IDV. However, this type of add-on is not available with a third-party car insurance policy which is the mandatory policy regulated by the government. 

Endnotes

A total loss is the ultimate situation for going for an insurance policy. It is quite a binding position where no one would want to be as even the insurance provider can seemingly, barely provide for it. However, having an insurance policy still helps and can help you make the right financial decisions even if you feel like your car is beyond any hope.

Also Read: 

How To Lower Premium of Your Car Insurance?

Top Factors That Determine The Premium of Your Car Insurance Plan

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

Wish

Written by Sumit Arora

Sumit is an insurance industry veteran with more than 20 years in the industry. Sumit is a frequenRead More

Disclaimer

This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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