How do insurance companies calculate the total loss value of a car?

Know how insurance providers determine the total loss value of a vehicle and offer coverage.
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How do insurance companies calculate the total loss value of a car?
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2 min
25-June-2023

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.

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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
  • Mileage
  • 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.

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Car insurance claim settlement in case of total loss

In case of a total loss, the insurance provider reimburses the present insured declared value of the vehicle subtracted by the compulsory deductible amount. The car owner will need to move the vehicle to the premise suggested by the insurer and then transfer the vehicle ownership to the insurer. At times, the insurance company might also ask the vehicle owner to cancel the vehicle registration from the RTO.

During a constructive total loss scenario, the insurer reimburses the entire present IDV of the car to the policyholder.

Under which claim category will total loss and constructive total loss fall?

Some accidents or natural disasters may cause total loss of vehicle, which means your vehicle suffers a total wreck. You can claim for total loss or constructive total loss under your own damage cover in comprehensive car insurance. You can also claim for the loss if you have a standalone own damage cover.

Calculation of insured declared value in case of total loss

The IDV of a vehicle is calculated by subtracting the vehicle’s depreciation cost from its manufacturer's listed price. One should note that the cost of registration, insurance, etc., is not a factor while evaluating the IDV.

An individual can use the following formula to calculate the IDV in case of a total loss situation:

IDV= (Manufacturer’s listed price - depreciation value) + (cost of car accessories-depreciation value) of all the components of the car.

However, in order to avoid mathematical errors, one can use an IDV calculator to determine this value online.

Frequently asked questions

How to calculate the total loss in car insurance?

Insurers usually consider the repairing possibility of the damages caused to the car. Following this, insurers will calculate the car’s actual cash value, considering the depreciation value as well. Basis these factors, the total loss of the vehicle gets calculated.

What are the factors that determine the car’s Insured Declared Value (IDV)?

A car’s IDV usually depends on the following factors:

1. Car’s age, make, model, and type
2. Engine’s cubic capacity
3. Showroom price
4. Accessories added to the car

How much will I get on filing a claim for total loss in insurance?

The insurer pays up to the car’s insured declared value for total loss in insurance. The insurer also considers the deductibles when settling the claim. However, this depends on the policy terms and conditions. If you have an add-on cover for the return of invoice, the insurer will pay the entire amount based on the invoice.

How to determine the car’s Actual Cash Value (ACV) in case of total loss in car insurance during claim settlement?

The actual cash value depends on the car’s age, condition, and mileage. The insurer also considers the current market value, and whether you have made any modifications to the car. Upon determining the actual cash value, the insurer will calculate the vehicle’s total loss in car insurance for claim settlement.

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