When you purchase an insurance policy, understanding some of the insurance terminologies can be difficult. While filing a claim, it is important to know and understand these terms properly. Let us look at the concept of total loss in a car insurance policy. Also, understand how the insurer calculates it.
What is ‘total loss’ in car insurance?
A total loss in car insurance occurs when the repairing cost of the damages is more than the vehicle’s worth. Total loss in car insurance can occur in two scenarios: in case of car theft or an accident leading to damage of a car beyond usage.
What is a constructive total loss?
A constructive total loss means that the vehicle has suffered extensive damages for which the repair cost may exceed the car’s Insured Declared Value (IDV). In some cases, the repairing cost for the total loss of the vehicle may even exceed the insurance limit. Mostly this type of loss occurs in a head-on collision or if the car suffers a total wreck.
How is a total loss in car insurance different from a constructive total loss?
Total loss in car insurance accounts when the repairing cost exceeds 75% of the car’s insured declared value or market value. In case of a constructive total loss, the repairing cost for damages that occurred may exceed 100% of the car’s IDV. Sometimes this value may exceed the coverage limit of the car insurance as well.
How is the total loss value calculated?
When a policyholder makes an insurance claim to the insurance provider against a damaged vehicle, the company assesses the condition of the vehicle. Based on this assessment, they decide whether to repair a car or declare it a complete loss.
When the repairing cost a vehicle exceeds the present value of a vehicle, the insurer declares it as a ‘total loss’. In such a scenario, the company determines the ‘Actual Cash Value’ of the vehicle.
Evaluation of the total loss value of a vehicle depends on several factors. These include state rules, company policies, and the make and manufacturer of the vehicle.
Here are the ways by which insurance companies determine the total loss value of a car:
• An insurance company appoints an ‘adjuster’ who inspects the condition of a damaged vehicle. This adjuster assesses the mechanical and physical condition of a vehicle. Based on this, the adjuster determines whether to repair the vehicle or not.
• Following this inspection, the adjuster evaluates the ‘Actual Cash Value’ of a vehicle after considering factors,such as depreciation and the car’s market demand.
• This determined value of the vehicle is as per the market value of the vehicle in its pre-damaged condition.
• Following are the factors on which the actual cash value of a vehicle depends:
- Manufacturing year
- Make and model
- Demand and supply in the area
- Physical wear and tear
Motor Vehicles Act rule for constructive total loss
If the vehicle suffers damages beyond repair and falls under constructive total loss, then you need to report the loss at the RTO. As per the Motor Vehicles Act, you must report the total loss of the vehicle within 14 days from the accident date. Following this, the RTO will cancel the vehicle registration. This mandate falls under section 55 of the Motor Vehicles Act, 1988.